Washington’s Digital Products Law A Legislator’s Perspective Representative Ross Hunter

How Did This Begin WA addressed the larger issue of taxing digital transactions (not just cloud computing) – Washington and taxpayers disagreed about the taxability of digital goods. – Taxpayer sought an exemption for standard financial information delivered electronically in Raised the question of whether other digital information is subject to tax.

Initial Investigation The DOR was directed, with the assistance of a committee, to study the taxation of digital products. – Committee included legislators, as well as industry, academic, and government reps. Committee directed to review: – Current treatment of digital goods in WA, other states, and countries. – Treatment under SSUTA

General Challenges Identified Antiquated laws: uncertainty in application of law – Does existing law cover digital goods? Erosion of tax base as items move to digital – E.g. books, music and video moving into digital world SSUTA requirements for taxing digital products – Cannot tax digital goods as TPP

Guiding Principles 1 Simplicity – Must be administrable Conformity (with SSUTA). – Create specific categories Technology Neutral – industry, delivery method, etc. E.g. must treat online and offline transactions the same

Guiding Principles 2 Revenue Impact – Up, down or neutral? Competitiveness – Compare other states and countries Long term solution – Solution must be durable – Address evolution away from tangible equivalents

Legislative Alternatives Don’t tax digital products – Simplicity but lost revenue – Advantage for online products Tax digital products – Specific approach Repeated legislative amendments? – General approach Avoid repeated amendments Follow tradition of taxing all TPP with taxing all digital products unless exempted.

Where are We Now? The initial digital products legislation was enacted in 2009 – We knew there would be more. Clarifying legislation was passed in 2010 We now have a working framework for taxing digital products