On Digital Good: Resale and Taxes

Apple recently filed a patent on creating a digital marketplace where users could resell their previously purchased digital items (ringtones, music, movies, etc.) to other users, presumably at a discount price. As reported by PaidContent, this patent is similar to one filed by Amazon last month. Apple’s filing goes into great detail in how their marketplace would work, including how the purchase might not benefit just the seller, but also the original publisher. This is an interesting concept, as most of the issues that publishers have had with sharing or reselling of their products has been over being properly compensated—if Apple has figured out a way to solve this problem, they may have cracked a whole new marketplace.

As both Apple and Amazon are contemplating creating marketplaces for used digital goods, we see the potential for an even newer economy surrounding the still new digital goods economy, including apps and ebooks. The digital marketplace continues to innovate, and if this news is any indication, the new innovations will create revenue, wealth and new investment for digital content publishers. Publishers and creators will benefit, as it will give consumers one more legitimate avenue to purchase their product, and help deter piracy. And consumers will benefit, as new marketplaces will open for discounted digital goods, saving money on purchases and allowing sellers to recoup some of their original investment in that good.

One impediment we could see to these new marketplaces spring up is an issue that has been festering for some time. It’s the question of how digital goods and services should be taxed. Right now, digital goods and services could potentially be taxed at several government jurisdictions.  For instance, what happens if your phone is registered in one tax jurisdiction and you purchase an app from your smartphone while bouncing off a signal tower across the country? You could potentially be taxed by two or three different levels of government. This is a problem as the digital goods economy is large and fast growing—well over 30 billion apps alone have been sold out of Apple’s App Store. This type of taxation can also discourage startups from locating their headquarters in one state or another, as Americans for Tax Reform rightly points out. If we want this burgeoning sector of our economy to continue to grow, both creators and consumers must be treated fairly when it comes to the taxes being levied. The current structure is unfair and must be addressed.

Last year, a bi-partisan bill was introduced into both houses of Congress that would have added some clarity to the issue. The bill would have been a great step in the right direction, but died without coming to a full vote. No replacement bill has been offered, as of yet.

If Congress wants to encourage economic growth and pro-consumer policies, they should clarify the tax structure for digital goods and services. These new markets are ripe to explode, but they can’t with the murky, confusing and unfair tax structure that’s currently in place.

Zack Christenson writes on digital tech issues for the American Consumer Institute Center for Citizen Research

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