Thursday, December 3, 2020
Orly Mazur (SMU) & Adam Thimmesch (Nebraska), Closing the Digital Divide in State Taxation: A Consumption Tax Agenda, 98 State Tax Notes ___ (Nov. 30, 2020):
In this installment of Academic Perspectives on SALT, Mazur and Thimmesch argue that while taxing digital goods and services presents practical and legal challenges for states, it is still a worthwhile measure to address the pandemic and related budget problems.
Expanding the consumption tax base to digital consumption is a relatively easy way for states to raise essential tax revenue as they cope with the pandemic and its accompanying economic downturn. Although a digital tax is an imperfect solution and requires overcoming some practical and legal issues, implementing one on consumption is better than the alternative of maintaining the status quo. Under the current patchwork of state laws, digital activities either escape taxation or are only partially and inconsistently taxed. This complex system can place onerous burdens on suppliers, results in governments losing out on a growing revenue stream, contributes to discriminatory and multiple taxation, and does not reflect the economic realities of the digital era. Given the current situation and the tough times ahead, it is worthwhile for states to implement digital taxes on consumption now.
The digital tax debate is far from over, and expanding the consumption tax base is just the first step. The wide range of attention being paid to DSTs and their various forms should not detract from this basic point: A broad, neutral, and strong state tax base is one that includes digital transactions.