WASHINGTON — A House bill that would prohibit state and local governments from imposing taxes on certain sales of digital goods and services that are taxable under current law would cost governments $3 billion in forgone revenue each year, according to estimates from the Congressional Budget Office.
In total, lost revenues from the enactment of H.R. 1860 “would total between 1% and 2% of state and local sales taxes on all goods and services due in 2013,” CBO said. However, the percent of revenues lost by each state would vary and depend on the characteristics of each state’s tax system, the non-partisan agency said.
In addition to the lost revenues from sales taxes on digital goods and services such as downloaded music, online photo storage and payroll processing, state and local governments would forgo about $100 million annually in hotel-related taxes. This would be due to the bill’s prohibition on collecting occupancy and sales taxes on the difference between the amount that hotels collect and the amounts hotel occupancy pay for hotel rooms when the occupants book rooms online, CBO said.
Michael Mazerov, senior fellow at the Center on Budget and Policy Priorities, said that the revenue loss is equal to 53,000 public-school teachers. “It’s a loss that states and localities can hardly absorb, since they’ve already cut more than 700,000 jobs for teachers and other workers in the past four years and are struggling to restore deep cuts in state aid to local school and other vital services,” he said.
CBO said the House bill, which is sponsored by Rep. Lamar Smith, R-Tex. and was approved by the House Judiciary Committee in June, would have no impact on the federal budget and would not affect direct spending or revenues.
The bill, along with an identical measure proposed by Sen. Ron Wyden, D-Ore., in the Senate were designed to protect digital goods and services, such as smart phones and cloud computing, from multiple and discriminatory taxes at the state and local level.
State and local groups have voiced strong opposition to the bills claiming they would create more problems than they solve and would significantly reduce state revenues.
“In the absence of this legislation, it is possible that some state and local governments would enact new taxes or change the way they tax sales of digital goods and services,” CBO said in report published late last week. Due to the difficulty of predicting such tax changes at the state and local levels, the CBO only considered revenues from taxes that are currently in place and being collected.