Monitoring Digital Services Taxes in the U.S.

Will digital services taxes (DST) cross the pond?

That’s becoming an increasingly important question to monitor in the U.S. during the COVID-19 pandemic and beyond.

Last year, France led the way with the adoption of its unilateral digital services tax, which is for the moment on hold until the end of the year. Other countries in Europe (Spain, Italy and the Czech Republic) and around the world (Brazil, India and Kenya) have since followed suit, either by finalizing similar tax policies or announcing plans to do so.

While Maryland’s failed attempt to pass a digital advertising tax (a close cousin of France’s DST) this spring preceded the pandemic’s onset, more states may soon consider similar legislation to address massive decreases in sales tax revenues due to COVID-related lockdowns.

Tax executives should keep close tabs on this possibility.

“Beyond monitoring DST legislation,” says Vertex Principal Economist & Tax Policy Advisor George L. Salis, “tax leaders should recognize why more state-level DST proposals may arise, the risks that they pose and the importance of working with state legislators, tax-writing committees and departments of revenue (DOR) to limit the likelihood of legally dubious, economically questionable and ineffective DST laws materializing.”

George has discussed the negative impacts of DST in previous posts. Now, he’s taking a deeper look at recent draft DST in the U.S. legislation in a longer article. We’ll share George’s article once it’s published. Until then, keep in mind that—as George puts it—“Maryland is not in France.” There are compelling legal and Constitutional reasons why European-style digital services taxes would face stiff uphill battles in the U.S.

At least that’s the case under normal circumstances. The pandemic and its aftermath are bringing about entirely new economic circumstances, which is why it’s important not to take anything for granted when monitoring tax policy-making in the coming months and years.