The Washington House Finance Committee passed a bill on Monday that would cost online consumers millions by taxing digital downloads.  House Bill 2075 expands the sales tax base to include everything from iTunes music to streaming videos.  The tax hike is estimated to raise $38.5 million for the state government alone, not counting local sales taxes.

While roughly a dozen states are considering similar legislation, Wyoming and North Dakota are moving in the exact opposite direction and considering measures to specifically exempt digital goods from taxation.  They argue the bills will drive tech-sector companies to their states, while keeping taxes low on consumers.

Below is a joint letter of opposition sent to the Washington House Finance Committee from ATR, the Property Rights Alliance, and the Media Freedom Project.  Click here for a PDF version.

Members of the Washington House Committee on Finance
RE: House Bill 2075
Dear Members of the Committee,
We write in strong opposition to House Bill 2075, which will dramatically raise taxes on businesses and consumers of digital products by subjecting these goods to the state’s sales and use taxes. The measure will put Washington at a competitive disadvantage with other states, encourage online black-markets, and hamper a growing free-market.
House Bill 2075 imposes the state’s sales tax to digital goods, automated services, and remote access software – such as streaming online videos. Expanding the sales tax base to include these digital goods would amount to a $38.5 million tax increase, not including the additional millions of dollars that would be collected by local taxes. While the Department of Revenue currently levies taxes on some digital products through administrative rule, this bill would greatly expand what items are taxable.
The measure also puts Washington at a competitive disadvantage with other states that are working to ensure digital goods remain untaxed. The tax would only apply to Washington companies and consumers, directly hitting the state’s technology industry. Washington consumers will also seek products from out-of-state venders who are not subject to the tax, putting Washington companies at a further disadvantage. Meanwhile, states such as Wyoming and North Dakota are considering legislation to exempt digital products from the sales tax to drive technology sector companies to their states.
Additionally, taxing consumers that download their music, movies, and books will encourage illegal downloading at a time when legitimate providers of these digital goods are working hard to establish an online market. The bill would essentially incentivize online piracy, reversing a hard fought for trend toward legal downloads.
For these reasons, we urge you to oppose House Bill 2075. Tax increases during this economic downturn will further depress the state’s economy and a growing industry. If you have any questions, please contact Kelly Cobb, state affairs manager, at (202) 785-0266.
Grover Norquist
President, Americans for Tax Reform
Kelsey Zahourek
Executive Director, Property Rights Alliance
Derek Hunter
Executive Director, Media Freedom Project