WASHINGTON — The National Governors Association sent a letter to House Judiciary Committee members Thursday urging them not to pass the digital goods act because it would reduce state revenues.

“The underlying bill would create far more problems than it solves,” wrote Dan Crippen, executive director of the NGA.

The NGA said that the bill, entitled the Digital Goods and Services Tax Fairness Act of 2011, would also erode state tax bases, generate excessive litigation and give special treatment to goods and services delivered through digital technology.

The letter was submitted as the House Judiciary Committee marked up the bill Thursday afternoon. 

In his opening statement, chairman Rep. Lamar Smith, R-Texas, said the bill “prohibits states from imposing a higher tax on digital goods and services than they impose on tangible goods and services” and it “provides a uniform framework to determine where a transaction that involves digital goods takes place.”

Smith introduced the legislation last May with Rep. Steve Cohen, D-Tenn., and Rep. Howard Coble, R-N.C. The bill and an identical version proposed in the Senate were designed to protect digital goods and services, such as smartphones and cloud computing, from multiple and discriminatory taxes at the state and local level.

“I am concerned that without a federal guidepost, states will impose burdensome and confusing taxes on digital goods that will put American innovation at a competitive disadvantage relative to the rest of the world,” Smith said.

The NGA said the bill establishes a “clear roadmap to nowhere taxation” through its elective sourcing and bundling provisions that allow companies to select where to source a particular sale and the tax treatment of that sale.

They also charge that it fails to grant states jurisdiction over the seller or to provide the ability to correct errors in how a sale is sourced. 

The NGA said that the bill should be designed to provide a framework for taxation “that does not favor one form of commerce over another, not enshrine favored tax status for goods and services that can be delivered electronically.”

“Governors are committed to sound tax policy that honors state sovereignty while providing certainty for taxpayers,” Crippen wrote. “Unfortunately, H.R. 1860 does not meet either criteria.”

In May, the Center on Budget and Policy Priorities issued a report also warning that the bill would immediately and significantly reduce state and local tax collections.

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