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DIGITAL GOODS AND SERVICES TAX FAIRNESS 

ACT OF 2011 

HEARING 

BEFORE THE

SUBCOMMITTEE ON COURTS, COMMERCIAL 

AND ADMINISTRATIVE LAW 

OF THE

COMMITTEE ON THE JUDICIARY 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED TWELFTH CONGRESS 

FIRST SESSION 

ON

H.R. 1860 

MAY 23, 2011 

Serial No. 112–137 

Printed for the use of the Committee on the Judiciary 

( 

Available via the World Wide Web: http://judiciary.house.gov 

(II) 

COMMITTEE ON THE JUDICIARY 

LAMAR SMITH, Texas, Chairman 

F. JAMES SENSENBRENNER, JR., 

Wisconsin 

HOWARD COBLE, North Carolina 

ELTON GALLEGLY, California 

BOB GOODLATTE, Virginia 

DANIEL E. LUNGREN, California 

STEVE CHABOT, Ohio 

DARRELL E. ISSA, California 

MIKE PENCE, Indiana 

J. RANDY FORBES, Virginia 

STEVE KING, Iowa 

TRENT FRANKS, Arizona 

LOUIE GOHMERT, Texas 

JIM JORDAN, Ohio 

TED POE, Texas 

JASON CHAFFETZ, Utah 

TIM GRIFFIN, Arkansas 

TOM MARINO, Pennsylvania 

TREY GOWDY, South Carolina 

DENNIS ROSS, Florida 

SANDY ADAMS, Florida 

BEN QUAYLE, Arizona 

[Vacant] 

JOHN CONYERS, JR., Michigan 

HOWARD L. BERMAN, California 

JERROLD NADLER, New York 

ROBERT C. ‘‘BOBBY’’ SCOTT, Virginia 

MELVIN L. WATT, North Carolina 

ZOE LOFGREN, California 

SHEILA JACKSON LEE, Texas 

MAXINE WATERS, California 

STEVE COHEN, Tennessee 

HENRY C. ‘‘HANK’’ JOHNSON, JR., 

Georgia 

PEDRO PIERLUISI, Puerto Rico 

MIKE QUIGLEY, Illinois 

JUDY CHU, California 

TED DEUTCH, Florida 

LINDA T. SA ́ NCHEZ, California 

DEBBIE WASSERMAN SCHULTZ, Florida 

SEAN MCLAUGHLIN, Majority Chief of Staff and General Counsel 

PERRY APELBAUM, Minority Staff Director and Chief Counsel 

SUBCOMMITTEE ON COURTS, COMMERCIAL AND ADMINISTRATIVE LAW

HOWARD COBLE, North Carolina, Chairman 

TREY GOWDY, South Carolina, Vice-Chairman 

ELTON GALLEGLY, California 

TRENT FRANKS, Arizona 

DENNIS ROSS, Florida 

[Vacant] 

STEVE COHEN, Tennessee 

HENRY C. ‘‘HANK’’ JOHNSON, JR., 

Georgia 

MELVIN L. WATT, North Carolina 

MIKE QUIGLEY, Illinois 

DANIEL FLORES, Chief Counsel 

JAMES PARK, Minority Counsel 

(III) 

C O N T E N T S 

MAY 23, 2011 

Page 

THE BILL 

H.R. 1860, the ‘‘Digital Goods and Services Tax Fairness Act of 2011’’ ............. 3 

OPENING STATEMENTS 

The Honorable Dennis Ross, a Representative in Congress from the State 

of Florida, and Member, Subcommittee on Courts, Commercial and Administrative Law ........................................................................................................ 1 

The Honorable Steve Cohen, a Representative in Congress from the State 

of Tennessee, and Ranking Member, Subcommittee on Courts, Commercial 

and Administrative Law ...................................................................................... 17 

WITNESSES 

Robert D. Atkinson, President, Information Technology & Innovation Foundation, Washington, DC 

Oral Testimony ..................................................................................................... 23 

Prepared Statement ............................................................................................. 26 

Russ Brubaker, National Tax Policy Advisor, Washington Department of Revenue, Olympia, WA, on behalf of the Federation of Tax Administrators 

Oral Testimony ..................................................................................................... 34 

Prepared Statement ............................................................................................. 36 

James R. Eads, Jr., Director, Public Affairs, Ryan, LLC, Austin, TX 

Oral Testimony ..................................................................................................... 45 

Prepared Statement ............................................................................................. 47 

LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING 

Prepared Statement of the Honorable Lamar Smith, a Representative in 

Congress from the State of Texas, and Chairman, Committee on the Judiciary ......................................................................................................................... 19

APPENDIX 

MATERIAL SUBMITTED FOR THE HEARING RECORD

Prepared Statement of the Honorable Dennis Ross, a Representative in Congress from the State of Florida, and Member, Subcommittee on Courts, 

Commercial and Administrative Law ................................................................. 60 

Letter from Steve Largent, President/CEO, CTIA—The Wireless Association .. 63 

Letter from Martin S. Morris, Chief Director, Legislative Affairs, the Federation of Tax Administrators (FTA) ....................................................................... 64 

(1) 

DIGITAL GOODS AND SERVICES TAX 

FAIRNESS ACT OF 2011 

MONDAY, MAY 23, 2011 

HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON COURTS, COMMERCIAL AND ADMINISTRATIVE LAW, COMMITTEE ON THE JUDICIARY, Washington, DC. 

The Subcommittee met, pursuant to call, at 4:05 p.m., in room 

2141, Rayburn House Office Building, the Honorable Dennis Ross 

(acting Chairman of the Subcommittee) presiding. 

Present: Representatives Ross, Cohen, and Johnson. 

Staff Present: (Majority) Daniel Flores, Subcommittee Chief 

Counsel; Travis Norton, Counsel; Johnny Mautz, Counsel; Allison 

Rose, Professional Staff Member; Ashley Lewis, Clerk; John Coleman, Intern; (Minority) James Park, Subcommittee Chief Counsel; 

and Norberto Salinas, Counsel. 

Mr. ROSS. Good afternoon. The Subcommittee will come to order. 

Pursuant to this notice, this is a legislative hearing on H.R. 

1860, the ‘‘Digital Goods and Services Tax Fairness Act of 2011.’’ 

Before we begin, I would like to pass along Chairman Coble’s regret that he could not be here today. And, also, the Chairman of 

the full Committee, Lamar Smith, intended to be here and express 

his strong support for the bill, but his flight back from Texas has 

delayed him. 

With that, I will recognize myself for an opening statement. 

Digital goods and services are increasingly important in our modern American economy. The digital platform not only makes consumption of entertainment media more convenient for consumers, 

but it also improves the efficiency of society as a whole. Data no 

longer need to be printed out and mailed to another location for 

processing. They can be delivered through cloud computing or email. And more students have access to a college education by logging into remote classrooms hosted on Web-based applications. 

Advances in digital technology have also resulted in advances in 

the mobile telecommunication industry. Rather than carry around 

a wad of plastic supermarket value cards in your wallet, you can 

now download an inexpensive application to your smart phone that 

will store all of your cards and make them available for scanning 

upon the touch of a button. 

A December, 2010, study revealed that consumers prefer to receive breaking news via smartphone more than on any other platform, including the Internet and television. 

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State governments are generally free to set their own tax policy, 

but they may not do so in a manner that burdens interstate commerce. Transactions involving digital goods and services are 

unique. Imagine you are sitting at Dulles Airport in Virginia waiting for a flight back to Florida. You download a music file from 

Apple, which is headquartered in California. The music is sent to 

you via a server in Oklahoma. Which of these States should be permitted to tax this transaction? Without a clear national rule, all 

four States may attempt to tax the transaction. 

There is already some confusion among States concerning where 

the sale of digital goods takes place. Every State has an incentive 

to claim that the sale took place in its borders and therefore subject that transaction to its own sales tax. As a result, some transactions risk being taxed several times over. Confusing tax policies 

not only gets passed on to the consumers in the form of higher 

prices, but it also slows down innovation. A Federal framework for 

taxation of digital goods will relieve the potential burden on interstate commercial that a patchwork of State laws may impose. 

I am pleased to be a co-sponsor of the Digital Goods and Services 

Tax Fairness Act. I look forward to hearing testimony from the witnesses today concerning this important legislation. 

[The bill, H.R. 1860, follows:] 

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Mr. ROSS.I will recognize the Ranking Member from Tennessee, 

Mr. Cohen, for an opening statement. 

Mr. COHEN. Thank you, Chairman Ross. I am pleased to be here, 

especially as this particular subject matter is one that I have 

worked on in the past and look forward to working with Chairman 

Smith and see it come to fruition this year. 

Since I have become a Member of Congress, I have consistently 

favored easing State and local tax burdens that threaten to impede 

consumers’ access to the digital economy. I have supported making 

permanent prohibition on discriminatory State and local Internet 

access taxes and have backed a temporary moratorium on discriminatory State and local taxation of wireless communication services. 

H.R. 1860 is of a piece with these other measures. It is similar. 

This legislation, of which I am the lead Democratic co-sponsor, creates a single national framework to govern the taxation of digital 

commerce by State and local jurisdictions, limiting inconsistency 

and confusion for consumers and business. Importantly, the Act 

prohibits State and local jurisdictions from imposing multiple or 

discriminatory taxes on the sale or use of digital goods and services, making sure those digital goods and services are not taxed differently than other forms of goods and services. This prohibition is 

helpful in ensuring that consumers, particularly low-income consumers, have access to innovative digital goods and services. 

Under the framework established under H.R. 1860, State and 

local jurisdictions can only impose taxes on retail sales of digital 

goods or services and limit those taxes to a customer or a seller. 

This ensures that digital goods and services are not taxed during 

multiple stages of the transaction, particularly for instruments that 

merely facilitate the sale itself. 

The Act also determines the appropriate taxing jurisdiction by 

limiting taxing authority to the jurisdiction encompassing the consumer’s or customer’s tax address. This will ensure the customer 

is not taxed by multiple States. And multiple States like to do that, 

but that is not necessarily good policy, nor is it fair to the consumer. 

As I have said in previous hearings that the Subcommittee has 

held on State taxation issues, I am not unmindful of the needs of 

State and local governments to have authority and that there is a 

certain regard we have to pay in Congress to intervening State and 

local tax powers because State and local governments need to provide goods and services. But we should intervene when it is just 

and do it sparingly, and this is one of those times we should do 

that. This broader national policy overrides the traditional deference that Congress gives to State and local governments regarding their taxation policies. 

The Constitution permits Congress to intervene under these circumstances. I can think of no better example when that is the case 

with respect to the multiple discriminatory and disparate tax treatment of digital goods and services of a fast-moving, borderless marketplace, and it crosses State and national boundaries thousands 

and perhaps millions of times a day. 

This bill, H.R. 1860, addresses a clear need for a uniform national framework for determining which jurisdictions can tax digital goods and services and under which circumstances. I applaud 

18 

our Chairman, the distinguished Chairman Lamar Smith, for introducing H.R. 1860 and for the leadership he has shown on this 

issue, going back to the previous Congress; and I thank the Subcommittee acting Chairman, Mr. Ross, and Subcommittee Chairman, Mr. Coble, for their co-sponsorships of the bill. 

I believe I am correct, Mr. Ross, you are co-chairman? 

Mr. ROSS. Today I am. 

Mr. COHEN. You are going to be. The doors to the church are 

open. 

I urge my colleagues to support this legislation. 

I yield back the remainder of my time. 

Mr. ROSS. Thank you, Mr. Cohen. 

Without objection, other Members’ opening statements will be 

made part of the record. 

[The prepared statement of Mr. Smith follows:] 

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Mr. ROSS. At this time, I would like to invite our panel to be 

seated and I will introduce you, after which we will allow you 5 

minutes to summarize your testimony before we go into questions. 

With us today is Mr. Rob Atkinson. He is the president and 

founder of Information Technology & Innovation Foundation, in 

Washington, D.C. He is the author of the forthcoming book, The 

Global Race for Innovation Advantage and Why the U.S. is Falling 

Behind. He has an extensive background in technology policy. 

Before coming to ITIF, Mr. Atkinson was vice-president of the 

Progressive Policy Institute and director of the Progressive Policy 

Institute’s Technology and New Economy Project. While at PPI, he 

wrote numerous research memorandum on technology and innovation policy, including e-commerce and innovation economics. 

Our next witness is Mr. Russ Brubaker. He currently serves as 

Tax Policy Advisor to the Washington State Department of Revenue, where he has served for over 25 years in various tax administration positions. Notably, from 1992 to 2006, he served as the assistant director of the Legislation and Policy Division, a capacity in 

which Mr. Brubaker drafted bills and advised State officials on 

matters of tax policy. He is scheduled to be the next president of 

the Streamlined Sales Tax Governing Board. 

Mr. Brubaker holds bachelors degrees in Political Science and 

English from Washington University and a masters in English 

from the University of Rochester. 

Our third witness is Mr. Jim Eads. He is director of Public Affairs for Ryan, LLC, a tax services firm with a large transaction 

tax practice in the United States and Canada. He recently completed 2 years of service as the executive director of the Federation 

of Tax Administrators, where he worked with and represented the 

tax agencies of the 50 States, New York City, and the District of 

Columbia. His career includes over 35 years in State tax work and 

tenure in the private sector. 

In addition, he has taught State tax law as an adjunct professor 

at the University of New Mexico School of Law. He holds a bachelor of science degree in business administration and a J.D. From 

the University of Arkansas. 

I wish to welcome each of you. Each of the witnesses’ written 

statements will be entered into the record in its entirety. 

I ask that the witnesses summarize each of your testimony in 5 

minutes or less. To help you stay within the time line, there is a 

timing light on your table. When the light switches from green to 

yellow, you will have 1 minute to conclude your testimony. When 

the light turns red, your 5 minutes has expired. 

After the witnesses have testified, each Member will have 5 minutes to question the witnesses concerning their testimony. 

With that, I now recognize our first witness, Mr. Atkinson. You 

are recognize for 5 minutes. 

TESTIMONY OF ROBERT D. ATKINSON, PRESIDENT, INFORMATION TECHNOLOGY & INNOVATION FOUNDATION, WASHINGTON, DC 

Mr. ATKINSON. Thank you, Chairman Ross, Ranking Member 

Cohen. I appreciate the opportunity to come before you today to 

24 

talk about the importance of a creating a fair tax system for digital 

goods and services. 

While States may look to discriminatory and duplicative taxes on 

digital content to create short-term gains in revenues, these policies would discourage investment in the digital economy, they 

would increase the cost of doing business online, they would lower 

national productivity, and they would ultimately hurt businesses 

and consumers. That is why we believe Congress is wise to consider legislation such as the Digital Goods and Services Tax Fairness Act. 

When we look at the trends in digital goods, we see that they are 

growing dramatically. In 2010, there were almost 

1.2 billion downloads of digital music tracks in the U.S., totaling $1.5 billion in revenue. E-books sales have reached a billion dollars 

and are expected to be $3 billion by the year 2015. These are important innovations that are driving important benefits to the U.S. 

Economy. One benefit is energy intensity. Getting a digital good 

online like a book consumes—or a CD—consumes about eight times 

less energy than getting the similar good going to the store and 

buying it. 

Not only that, but consumers can save considerable amounts of 

money by consuming digital goods. Just look at the price of a typical hardback book, which is $26. You can buy that same book as 

a digital book on an iPad or a Kindle for normally around just half 

of that—$13. 

So this is an important set of developments that are going to 

benefit U.S. consumers, and yet we shouldn’t let the narrow interest of States override the national interests. And a State who 

wants to tax digital goods on a discriminatory basis or a multiple 

basis, they get all the financial benefit of that. In other words, they 

get more tax revenues. But the overall U.S. economy suffers the 

cost. 

And the reason for that is because of what economists call network effects. The digital goods economy is not simply like a widget 

economy. If there are fewer digital goods consumed because of high 

taxes—and it is pretty clear the evidence shows that higher taxes 

would lead to less consumption of these—this does two things, in 

essence. One is, it lowers the demand for digital devices—let’s say 

iPads or Kindles or devices of broadband—that people are going to 

use to consume those. But the other thing it would do, it would 

raise the price of digital goods; and the reason for that is because 

the marginal cost of digital goods are quite low. You spend a lot 

of money as a company building the digital good, creating it; and 

then selling the next copy is quite low. So if you are getting fewer 

sales, that means that you are getting less revenue overall in 

which to amortize your cost. Therefore, you have to raise prices on 

other consumers because of that. So, therefore, it is important that 

Congress act on this. 

And, in fact, in the past we have seen States that have discriminatory taxes on digital activities. For example, there are many, 

many States now that have discriminatory taxes on Internet access. I am not talking about sales taxes on goods. I am talking 

about just Internet access. And I testified before this Committee I 

think perhaps 2 years ago on discriminatory wireless taxes. We see 

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many States have very, very high taxes on wireless access, much, 

much higher their sales tax. 

So States can do this. They have shown they have done this in 

the past. And there is a particular I think reason why States might 

do this today, is that digital goods normally are consumed from 

outside the State. 

I don’t know, by the way, if there is a clock. I don’t see a red 

light, green light. 

Mr. ROSS. There is not one up there, is there? Then I will let you 

know. 

Mr. ATKINSON. I guess I can talk as long as I want. 

Mr. ROSS. You have a minute and fifteen seconds. 

Mr. ATKINSON. Thank you. So I will wrap up. 

One of the reasons I think States will have an incentive to do 

this is that, normally, a consumer will consume a digital good from 

anywhere in the country—in fact, anywhere in the world; and 

States might want to have higher taxes there so they incent their 

consumers to buy from local bricks and mortar companies. 

Right now, States have a long and I would say sordid tradition 

of imposing protectionist laws on e-commerce. Right now, it is illegal in all 50 States to buy a car from the automobile producer. So 

while we can go online and buy a computer from Dell or HP, we 

can’t go online and buy a car from General Motors, although we 

can do that in other countries. If you are in Brazil, you can go online and buy a car from General Motors, but you can’t in this country because car dealers have gone to State legislators and they 

have been able to pass discriminatory protectionist laws. 

So I think we have seen very clear evidence that States are willing to do these things that harm the overall digital economy; and, 

therefore, that is why we support this legislation that would not 

prohibit States from putting taxes on but clearly making sure the 

taxes are not discriminatory and not duplicative. 

Thank you very much. 

[The prepared statement of Mr. Atkinson follows:] 

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Mr. ROSS. Thank you, Mr. Atkinson. 

Mr. Brubaker, you are recognized for 5 minutes for an opening. 


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TESTIMONY OF RUSS BRUBAKER, NATIONAL TAX POLICY ADVISOR, WASHINGTON DEPARTMENT OF REVENUE, OLYMPIA, 

WA, ON BEHALF OF THE FEDERATION OF TAX ADMINISTRATORS 

Mr. BRUBAKER. Chairman Ross, thank you for the opportunity to 

address the Subcommittee concerning the Digital Goods and Services Tax Fairness Act of 2011. 

I am Russ Brubaker, testifying on behalf of the Federation of Tax 

Administrators. FTA’s members are the Departments of Revenue in 

each of the 50 States, New York City, and the District of Columbia. 

FTA strongly opposes many of the provisions in H.R. 1860. This 

legislation would create a large revenue loss for States and local 

governments. As structured, it would also create a major competitive sales advantage for large out-of-State businesses that sell 

goods and services 

online. They will often have an opportunity to restructure their 

way out of tax, an opportunity most small businesses will not have. 

The legislation will cause extensive litigation in Federal courts 

that will go on for years. Small businesses, whether Main Street 

shops or digital startups, are unlikely to have the resources to go 

to Federal court over a State tax matter. 

FTA recognizes that Congress has an interest in making sure 

that there are no real impediments to interstate commerce. Current State tax law in this area does not create any. Digital goods 

and services are not even included in most State tax systems. The 

digital goods and services taxed by most States that tax them are 

the familiar books, videos, and music. This bill prohibits or preempts perfectly legitimate State tax authority. Intermediary provisions mean online travel companies will be agents, rather than sellers. They will not collect any hotel taxes. Many other intermediaries, often the only logical collectors of a tax, will not have 

to do so, and there will be no recourse to the seller. 

Resale provisions would prevent application of my State’s business and occupation tax when digital goods and services are licensed, even though no discriminatory or multiple taxes are imposed on these transactions. 

Origin sourcing provisions mean banking services provided online by remote sellers could escape taxation. The same kinds of 

services provided by small instate banks would be subject to tax. 

Discriminatory or multiple taxes are vaguely defined. We will be 

fighting for years over what those terms include. 

We have been told in other testimony that the Mobile Telecommunications Sourcing Act is a good model for State and business cooperation. We agree. We agree it is a good model because 

there was a strong partnership between businesses and the States 

in developing it. There has been no such partnership here. 

We do have models for such partnerships on digital goods and 

services. Within the Streamlined Sales and Use Tax Agreement, 

business worked with the States to adopt definitions and sourcing 

rules and bundling rules that the member States would be required 

to use in taxing these products and services. 

Because we agreed to the changes business wanted, my State 

had to adopt a new imposition statute; and, as you know, adopting 

new tax impositions is not easy. Starting in 2007, the Washington 

35 

Department of Revenue staffed an intensive year-and-a-half study, 

legislatively mandated, with a committee of legislators, business, 

and government stakeholders and subject matter experts. Initial 

legislation was run in 2009, followed by the anticipated clarifying 

legislation the next year. 

We continue to work with stakeholders by making refinements to 

the implementing rules and tax advisories. As we have done that, 

we have held no one liable for back taxes in unsettled areas where 

guidance is not yet available. 

Ironically, H.R. 1860, will undo or put at risk much of that cooperative work. Definitions, sourcing rules, and bundling rules in this 

bill are different in key ways from what 21 full-member streamlined States have agreed to. 

Another key difference, States and businesses participating in 

streamlined long ago agreed that canned software should be treated as tangible personal property, regardless of the manner of delivery. This bill would treat it as a digital good if delivered by electronic means. Neither the software change nor the prohibition on 

my State’s business tax addresses multiple or discriminatory taxation of digital products and services, but they certainly do impinge 

on State sovereignty. 

Finally, I want to address the undocumented fears that are being 

raised. We have not been provided actual evidence of significant 

discriminatory and multiple taxation of digital goods and services. 

Tax administrators, at least the ones I have come to know across 

the country, approach the taxation of digital goods and services 

with great caution. They know there is much to understand, and 

they have absorbed the lessons of the Internet Tax Freedom Act. 

Mr. Chairman, that concludes my testimony. Thank you again 

for the opportunity to appear before the Subcommittee. 

[The prepared statement of Mr. Brubaker follows:] 

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Mr. ROSS. Thank you, Mr. Brubaker. 

Mr. Eads, you are recognized for 5 minutes for an opening. 

TESTIMONY OF JAMES R. EADS, JR., DIRECTOR, 

PUBLIC AFFAIRS, RYAN, LLC, AUSTIN, TX 

Mr. EADS. Chairman Ross, Ranking Member Cohen, thank you 

for your invitation to appear here today in support of H.R. 1860, 

the Digital Goods and Services Tax Fairness Act of 2011. 

My name is Jim Eads. I am a director of Public Affairs for Ryan, 

a tax services firm that represents taxpayers. Our firm is 

headquartered in Dallas, with offices throughout the United States, 

in Canada, and in Europe. 

I applaud you, Mr. Chairman, Chairman Smith, and Representative Cohen for your leadership on this issue. This bill would establish a national framework for State and local taxes imposed on digital commerce, precluding multiple and discriminatory taxation. 

Some might question whether this is a solution in search of a problem. Indeed, in a prior position, I might have suggested that. But, 

today, digital commerce is a rapidly growing segment of our economy. This legislation will provide certainty to the millions of consumers and businesses that purchase digital goods and services, 

the thousands of providers required to collect taxes on that commerce, and the State and local jurisdictions seeking to tax those 

goods and services. 

Prior to my employment at Ryan, I was the executive director of 

the Federation of Tax Administrators. That role brought me before 

this Committee many times when it was considering various legislative proposals impacting State and local taxes. 

While I am here today to testify in support of H.R. 1860, my approach to the consideration of these issues and possible solutions 

is the same today as it was then. Congress should respect State 

sovereignty and the need for State and local governments to administer their own fiscal issues. Congress should proceed cautiously in moving forward with any legislative measure impacting 

State and local tax authority. 

As you consider this kind of legislation, please be thoughtful first 

as to the Nation’s interest in a national and vibrant market, then 

cautious, deliberate, and mindful of the respective roles of government in our Federal system. While this was and is my opinion as 

to how these kinds of issues should be considered, I have come to 

believe that this measure strikes the right balance and demonstrates when congressional action is needed. The complexities 

that surface in today’s Internet-based economy with digital transactions taking place all over global broadband networks transcending State boundaries cries out for a reasonable solution. Congressional action is needed to grant a jurisdiction the right to tax 

these goods when it is appropriate. This measure will provide consumers, sellers, and State governments and tax administrators 

with the certainty and the stability that they are seeking. 

A little over a year ago, then-Governor Douglas of Vermont testified on behalf of the National Governors Association at a hearing 

of this Subcommittee entitled, State Taxation: The Impact of Congressional Legislation on State and Local Government Revenues. 

At that hearing, he 

46 

outlined four principles to consider when it was appropriate for 

Congress to enact legislation of this sort. 

His testimony suggested that any Federal legislation in this area 

should, first, do no harm, preserve flexibility, be clear, and find the 

win-win. By do no harm he meant legislation should not disproportionately or unreasonably reduce existing State revenues. In suggesting the preservation of flexibility, he meant that States should 

not be unduly hindered in their own pursuit of reforms by Federal 

legislation that restricts their authority to act. By being clear, he 

meant that the legislation should avoid ambiguity or the need for 

expensive and time-consuming litigation. Finally, the Governor 

suggested that Congress should find the win-win. He noted that 

the goal of all legislation should be to find a balance that improves 

the standing of all stakeholders. 

I believe that the provisions of H.R. 1860 are consistent with 

each and every one of these principles and, as such, is worthy of 

your enactment. 

The other main provision of this legislation is to preclude expansion of utility-type taxes. Given the wide range of providers of 

goods and services, these kind of taxes can indeed be inequitable 

in our digital economy. 

In summary, the economy of the 20th century is different than 

the economy of the 21st century. States cannot address all these 

issues on their own, and Federal legislation is needed. 

Thank you for your invitation to speak here today, and I would 

be pleased to answer any questions that you might have. 

[The prepared statement of Mr. Eads follows:] 

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Mr. ROSS. Thank you, Mr. Eads. 

I will now begin the questioning by recognizing myself for 5 minutes. 

Mr. Atkinson, this bill has a diverse group of supporters, including the disabled community, the high-tech sector, and various African American, Asian, and Hispanic groups. Why do you think there 

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Mr. ATKINSON. Well, I think for two reasons. One is it is a commonsense bill. It doesn’t preclude the States from taxing this. It 

just says you can’t tax it twice and you can’t take it at a higher 

rate. I think the average person would just say that is just common 

sense and that is going to be good. 

Mr. ROSS. It is consumer-friendly. 

Mr. ATKINSON. And consumer-friendly. Exactly. It is not unfair 

to consumers. It treats them the way they would be treated in kind 

of the existing realm. 

Secondly, I think people are very aware that this is going to be 

a very fast-growing area of our economy, and increasingly people 

are going to be consuming more and more digital goods online. 

And, as that happens, people want to know that they are going to 

be treated fairly by tax authorities. 

That would be my guess as to why it has seen such broad support. 

Mr. ROSS. Some recent news reports have stated this bill would 

affect State taxes on all online purchases, including purchases of 

tangible goods made online. In your opinion, is that an accurate 

statement of what this bill would do? 

Mr. ATKINSON. No. My view of this bill is it would deal with a 

small subset of goods that are sold online, which are the digital 

goods, not analog or physical goods that are purchased online but 

shipped on non-telecommunications means. To me, I read the bill 

as a narrow slice of that overall digital economy, just the goods 

that are delivered digitally—and services. 

Mr. ROSS. They say that the power to tax is the power to destroy. 

I guess, as Mr. Eads pointed out, in this particular case H.R. 1860 

gives us a balance between the over-exercise of that taxing power 

and yet not abridging the sovereignty of the States’ rights. Would 

you agree? 

Mr. ATKINSON. Well, I do agree with that, although I have to say 

I have a slightly different view of States authority here and sovereignty. Having worked for a Governor, I am quite aware of State 

issues, and I respect the challenges they face. But the digital economy is fundamentally different than the old physical analog economy, where much of what people purchased was within their State, 

and it made sense for State regulatory and tax systems to be at 

the State level. But when we are talking about a digital economy, 

we are talking about something that is inherently national, if not 

international. I think that just fundamentally changes the way we 

have to think about it. 

Mr. ROSS. Thank you. 

Mr. Brubaker, when I purchase a digital good or service today, 

the seller is ultimately the tax collector for that transaction. Digital 

goods providers have to figure out which States impose a tax and 

then apply the tax to the transaction. Without a national framework, won’t digital goods providers be exposed unnecessarily to litigation over where a sale takes place and how much the tax can be 

imposed by a certain State? 

Mr. BRUBAKER. Right now, there are very few States imposing 

taxes on digital goods, so I don’t think it is much of a challenge 

at this point. And the States are being extremely cautious. 

53 

I think developing a framework in fact is an excellent idea. I just 

don’t think the framework in this bill works yet. I think we would 

certainly like an opportunity to work with the business community 

on some of the issues that we find in the bill, like the definitions, 

which are vague and unclear in some cases or nonexistent in others. Those are the kinds of things that lead to litigation. And the 

Federal court provision will make it difficult to get resolution to 

those issues so that States can provide authoritative guidance to 

taxpayers. 

I worry about the small taxpayers in our State that want to 

know now what do I need to do on this. So I think we need a 

framework. I just don’t think this bill is there yet. 

Mr. ROSS. Thank you. 

Mr. Eads, you are the former executive director of the Federation 

of Tax Administrators, as you mentioned, a group that is represented here today by Mr. Brubaker and is opposed to this bill. 

Responding to Mr. Brubaker’s testimony, can you explain to us how 

this bill would bring clarity and simplification to each State’s policy 

for taxing digital goods, in 1 minute or less? 

Mr. EADS. Chairman Ross, the States are in a quandary here, as 

are businesses, as are consumers. Most certainly in the retail sales 

tax area most of these laws were written right after the Depression 

and have been updated on an ad hoc basis since then. The economy 

simply is more robust, more vibrant, more changing than it has 

been. And tax policy tends to lag in that area. So I believe that you 

are trying to do the right thing here by setting forth some framework in which all the parties have a clear understanding of the 

rules. 

Mr. ROSS. Thank you. 

With 12 seconds left, I will conclude my questioning and then 

recognize the distinguished Member from Tennessee and the Ranking Member, Mr. Cohen, for 5 minutes. 

Mr. COHEN. Thank you, Mr. Ross. 

Mr. Brubaker, you are from Washington State, is that correct? 

And you say you are looking out for the small taxpayers, is that 

right? 

Mr. BRUBAKER. We try very hard to do so, yes. 

Mr. COHEN. Your State, like my State in Tennessee, is one of the 

few States that doesn’t have a State income tax, is that correct? 

Mr. BRUBAKER. That is correct. 

Mr. COHEN. Doesn’t that make your State like my State, one of 

the most regressive States in the country for taxation and hurt the 

small taxpayer? 

Mr. BRUBAKER. Well, it is certainly regressive in its taxation of 

low-income families. I think our business taxes are not quite as regressive as our taxes that affect individuals. 

Mr. COHEN. I am thinking in terms of the small, 

low-income families. I guess that is different from small taxpayers because they don’t have lobbyists. That is the people I am 

concerned about. 

Mr. Brubaker. The business and occupation tax has a very low 

rate. It is really broad, and so the rates are generally low. I don’t 

think it poses a large burden on most small taxpayers. We do have 

54 

an exemption for them—or a threshold—so they only pay once they 

are above a certain income. 

Mr. COHEN. How about those low-income folks when you don’t 

have that income tax? It is regressive. It hurts them, doesn’t it? 

Mr. BRUBAKER. Yes. 

Mr. COHEN. What is Washington State doing to try to make your 

tax system more progressive and concern about the low-income people that are in favor of this bill? 

Mr. BRUBAKER. We have quite a few limitations on what we can 

do to change our tax system right now that have been enacted by 

initiatives. So you won’t be seeing any changes in our tax without 

a two-thirds vote of our legislature. It is very hard to achieve. 

Mr. COHEN. So you can’t have an income tax without 

two-thirds. 

Mr. BRUBAKER. That is correct. 

Mr. COHEN. As a result of that, does that mean you have to look 

for other forms of taxation to supply the services that Washington 

State needs to supply to those low-income people that are suffering? 

Mr. BRUBAKER. Right now, it means that we can’t get anything 

else without a two-thirds vote either. So we are doing all of our 

budgeting by cuts. 

Mr. COHEN. The bottom line is you need more access to taxes like 

this that can make up for the fact that you don’t have a flexible 

tax system that has now been handicapped by these initiative processes in your constitution and you don’t have the opportunity of a 

more progressive tax system through an income tax. So you have 

got to resort to these type of taxes to care of the needs of your people. 

Mr. BRUBAKER. We are using the taxes we already have and applying some of them to some digital goods and services as much as 

we do others. We have a thriving digital goods and services economy in our State, so we are being very careful in how we do this. 

We do not want to harm that sector of our economy. 

Mr. COHEN. Are you familiar with the Amazon Tennessee issue 

that just came through our legislature? 

Mr. BRUBAKER. I am not quite sure how to answer that. 

Mr. COHEN. Yes or no would be the appropriate answer. These 

aren’t real tough ones. 

Mr. BRUBAKER. I haven’t read what came through your legislature. I know there have been different things pending, but I 

haven’t read what actually passed. So I can’t give you a yes or no 

to something I don’t know. 

Mr. COHEN. Mr. Eads, Mr. Camp predicted the end of the world 

was going to happen Saturday. 

Mr. EADS. I am sorry, Mr. Chairman? 

Mr. COHEN. We are here. Mr. Camp predicted the world was 

going to end on Saturday. 

Mr. EADS. To the best of my knowledge, it did not. 

Mr. COHEN. That is right. 

Mr. Brubaker suggested it will occur when we pass this bill. Tell 

us why he is wrong, too. 

Mr. EADS. Thank you ever so much, Mr. Cohen. I would never 

compare my friend Russ Brubaker to Mr. Camp. 

55 

I think in the debate about these taxes, depending on which side 

you are on, fear is a powerful ally; and I think that what you are 

called on to do in the exercise of your responsibilities in the national Congress is to try to sort that out and determine what is 

best for the United States. 

Don’t get me wrong. I have appeared before you when I represented FTA and argued quite zealously for the right of the States 

to determine their own fiscal destiny. I still do believe that. But I 

also believe that, in exercise of your responsibility to protect this 

vibrant market, some rules that enhance understanding are almost 

always worthwhile. 

Mr. COHEN. Thank you. 

Mr. Atkinson, please provide some examples of the States taxing 

on digital goods and services. Mr. Brubaker said there are no discriminatory taxes. I think you can maybe cite some examples of 

discriminatory taxes that are imposed. 

Mr. ATKINSON. At least certainly in some areas, it is not exactly 

digital goods, but we see that in the wireless areas where there are 

States such as New York State and California and other States 

that have very, very high taxes on wireless services, including data 

services for your iPhone or your BlackBerry, for example, that are 

much higher than any other kinds of sales taxes in the State. So 

that would be a very good example of that. 

Mr. COHEN. Thank you. 

My time has expired. Therefore, I yield back the remainder of my 

time. 

Mr. ROSS. Thank you, Mr. Cohen. 

The Chair now recognizes the distinguished gentleman from 

Georgia, Mr. Johnson, for 5 minutes. 

Mr. JOHNSON. Thank you, Mr. Chairman. 

I was thinking I woke up on Sunday morning and I thought I 

was in heaven. But you all have now burst my bubble. So back to 

reality, right? 

Mr. Atkinson, you believe that unless Congress creates a national framework to ensure consistency and fairness in the Tax 

Code, there is a risk that digital goods and services purchased and 

downloaded in one State will be taxed at higher rates than related 

fiscal goods. Is that correct? And, Mr. Brubaker, do you agree that 

that is a legitimate problem? 

Mr. ATKINSON. I would say I think it is certainly a risk. 

Mr. JOHNSON. Excuse me, Mr. Brubaker, do you see that as a legitimate issue? 

Mr. BRUBAKER. Well, I think there is some risk if we leave it unattended too long. But we need to work for a framework that takes 

into account the need for definitions and for allowing things to be 

taxed somewhere. And so I think it is possible to construct a framework, and I think it needs to be done in a timely fashion, and I 

think it can be. I just think that this framework is not there yet. 

I do think we need a framework for this area of taxation. 

Mr. JOHNSON. So you are concerned about definitions lodged in 

this proposed legislation. What definitions do you have problems 

with? 

Mr. BRUBAKER. Well, there are quite a few. 

56 

One is a term that is not even used in the bill, but it actually 

is a foundation for how it works, which is that you should have to 

have a tangible equivalent before you tax something in the digital 

world. I have concerns about that. Because, one, if the term is not 

in the bill but yet it is the basis of the bill in some respects and 

you end up in a situation where, with all the kinds of digital products there are, it is very hard often to describe an exact tangible 

equivalent. People will disagree about what is a tangible equivalent 

and what is not. 

Just think about all the way music is now provided through digital services. When is it a tangible equivalent and when is it not? 

So without some work on a precise definition on that, then we are 

going to have difficulties. 

There are quite a few definitions that are not in the bill at all, 

and then again there are—I can actually—I will supply the Committee shortly with a complete list in writing of the terms we think 

are deficient or nonexistent. 

Mr. JOHNSON. Please do. 

And so you are willing to work with folks like Mr. Atkinson and 

Mr. Eads to actually perfect this legislation—or can it be perfected? 

Must we start out again, totally new legislation? 

Mr. BRUBAKER. It is a tough question to answer in the sense that 

I am not sure how quickly this particular framework could be 

brought into line with something that the States could support. I 

hope it could be. 

I think it is important that the certain principles have to be followed. They include simplicity and fairness, conformity with the 

Streamlined Sales and Use Tax Agreement, neutrality regarding 

industry and the means of delivery, some consideration to revenue 

impacts and pyramiding. And, on the business side, consideration 

given to the amount of pyramiding on them. I think that is an important issue in digital goods. 

I think it takes time to sort through those, so I don’t want to say 

that I think it can be done in a couple of weeks. I think it could 

be done in the course of a reasonable amount of time. 

Mr. JOHNSON. Mr. Atkinson, do you agree that it would make 

sense to sit down and work through some of the problems that 

some of the bill’s opponents might have? Wouldn’t that be reasonable to do? 

Mr. ATKINSON. I am not a tax administrator. So when I hear an 

issue like the tangible equivalent, that seems reasonable to me. 

But I am not a tax administrator. 

Mr. JOHNSON. I am not either, but it seems like a reasonable observation. Does it seem that way to you as well? Could be reasonable. 

Mr. ATKINSON. It could be. But I also know that the United 

States has a long history of opposing any Federal intervention on 

taxes, and I am not clear what this is from. 

Mr. JOHNSON. Do you think that there is some reason to go forward with this legislation quickly, as opposed to just simply having 

a bipartisan, if you will, reasonable discourse about it to try to perfect it? Do you think that would be the best thing to do? 

Mr. ATKINSON. I think it would be useful to pass this bill in this 

Congress, because these are issues that are going to get worse. And 

57 

even as Mr. Brubaker said, I think he said, ‘‘There is some risk if 

we leave it unattended too long.’’ 

Mr. JOHNSON. Well, I tell you, anytime somebody tells me that, 

okay, you have got to buy this timeshare today or else you won’t 

able to buy it tomorrow, the price will go up or it is going to be 

gone, you must act quickly, do it now, impulse buying is great, then 

I get the opposite reaction. It causes me to just want to hold up 

and think that there is some ulterior purpose for moving forward, 

like perhaps there is a privileged category in the legislation for certain types of goods and services or there is some kind of trick in 

there that is going to protect somebody’s ability to make an unfair 

profit off of something. So something doesn’t smell right, in other 

words, when that happens. 

Mr. ROSS. The gentleman’s time has expired. 

That being the last of our questions, I would like to thank our 

witnesses for being here today. 

Without objection, all Members will have 5 legislative days to 

submit to the Chair additional written questions for the witnesses. 

Mr. JOHNSON. Mr. Chairman, excuse me for interrupting, respectfully, but I find that we have a pattern here with these hearings on legislation, here in this Committee particularly. We just 

have one round of questions. We stick to the 5-minute rule. We are 

not really getting into the guts of the matters that come before us. 

And I just want to make that known for the record. 

I certainly would not be opposed to a second round or even a 

third round of questions on this particular issue. I would ask the 

Ranking Member what his thoughts were as far as another round 

of discussion about this. This bill is coming up for markup, I understand, in about 2 weeks or so, and I just think we have got about 

an hour and 40 minutes before votes are called, and I myself would 

really like to talk with Mr. Eads, get his thoughts on it. 

Mr. ROSS. I do have a conflict starting at 5 o’clock so that would 

put a little hamper on that. 

Mr. Cohen? 

Mr. COHEN. I am at the discretion of the Chair. I do have a teleconference on peace in the Middle East. And I am afraid if I am 

not there, God knows what will happen. 

Mr. JOHNSON. I see I am outvoted on this. 

Mr. ROSS. Point well taken, Mr. Johnson. 

Mr. COHEN. People in the Middle East may be concerned about 

that. 

Mr. ROSS. Please do note, however, if there are additional questions that need to be asked or would like to be asked by the Members, please have the written questions for the witnesses, which we 

will forward and ask the witnesses to respond to as quickly and 

promptly as possible so that their answers can be made part of the 

record. 

Without objection, all Members will have 5 legislative days to 

submit any additional materials for inclusion in this record. 

With that, again, I thank the witnesses, and this hearing is adjourned. Thank you. 

[Whereupon, at 4:50 p.m., the Subcommittee was adjourned.] 

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