Lawmakers eying taxation on digital downloads

Color us completely unsurprised, but it's being reported that a number of state politicians are looking at the possibility of imposing new laws to levy taxes on digital downloads as a method of taping up shattered budgets. Yep, anything from music to videos to books are at risk, as a growing number of lawmakers are looking to start collecting taxes from each iTunes track and Kindle eBook you purchase. Of course, this idea is far from new, and a number of US states already impose such taxes, but it seems that the ever-growing amount of content purchased online has caught the eye of those looking for new streams of tax revenue. Needless to say, the issue as a whole is about as far from black and white as you can get, but we're not asking you to take our word for it -- tap the read link to get a good feel of just how sticky the situation really is.

[Image courtesy of Izzy]

[Jagannath A @ Apr 17th 2008 5:17AM]

next in line: Lawcrappers eying taxation on breathing air

[nDee @ Apr 17th 2008 6:03AM]

Collecting tax from purchase of song"Imagine" and spend them in Afghanistan

[Totalfixation @ Apr 17th 2008 5:17AM]

Here to more illegal downloading, if this passes.

[aardvark sandwich @ Apr 17th 2008 8:01AM]

Ahh the sweet, sweet law of unintended consequences :)

[Ty @ Apr 17th 2008 10:21AM]

Which will lead to... more Government dollars spent combating piracy!

[jeicrash @ Apr 17th 2008 11:59AM]

Exactly what I was thinking, We pay enough taxes, leave our digital world alone.

[henry @ Apr 17th 2008 5:33AM]

wow. with the increasing cost of living across the country, this seems to me like the exactly counter-intuitive thing to do.
"hey, people have even less money than ever for disposable income! let's make sure they have even less of it!"
sheesh.

[Excalibre @ Apr 17th 2008 5:37AM]

Tax is as much about redistribution of income as well as discouraging of consumption of particular goods as it is revenue raising: any introductory economics course will teach you that.

[henry @ Apr 17th 2008 5:43AM]

yes, i understand the basic principles of taxation. again, given the majority of the music-purchasing public, and how much buying power they actually have (im speaking of teenagers here), this seems like the counter-intuitive thing to do. this will drive people back to illegal downloads, just like another poster said. and then nobody wins.

[r3loaded @ Apr 17th 2008 5:54AM]

Didn't someone once say that economic policy was too important to be left to politicians?

[luzzio @ Apr 17th 2008 7:25AM]

@r3loaded

I totally agree with that.

Politicians can be tempted to make bad policies which are popular with the people, thus keeping him in power.

And the people are a generally selfish lot.

[jc @ Apr 17th 2008 6:03AM]

Why don't they start with thier salaries first? Instead of wasting tax payer money holding sesions to vote for payraises for themselves. Oh and helping bail out banks that where irresponsible and took risks. And stop giving tax breaks for big oil componies. I am sure they could find better places to find money if they really looked hard enough.

[cuneiform @ Apr 17th 2008 3:49PM]

A high rate of pay for legislators is extremely important (at least in principle). This allows non-wealthy citizens to leave their jobs for a period of time and represent the people of their district. If our representatives are not paid well, then only the elites will be able to afford to sit in a house of parliament. With the amount of money it takes to run a campaign nowadays this principle might be losing its importance, but it remains essential in local governments.

Closing “tax loopholes” is harder than it sounds. For every dollar these large companies are taxed, the chance of them leaving the country increases. This is a very real threat to G7 countries, especially with respect to their finance, insurance, and energy industries.

As for the download tax, I would be all for it if they were to replace the income tax with it! ;-)

[考生 @ Apr 17th 2008 6:04AM]

that makes me feel well。
paying tax can‘t be avoid，as birth and die as well

[benjasmine @ Apr 17th 2008 7:04AM]

"Nothing is certain but death and taxes." - Benjamin Franklin
Apple, can you pay the sales tax?

[emailtabs @ Apr 17th 2008 7:12AM]

Yeah, but no but yeah but no.

Sod that!

[Francisco Viana @ Apr 17th 2008 6:07AM]

I thought iTunes songs and movies were already taxed with state taxes. I use gift card to download iTunes videos (as I am out of US) and noticed that when I used "my friends" address from WA state the movies were taxed but when I changed to "my friend" address from Alaska the movies are not taxed as Alaska is a sales tax free state.

[jptech @ Apr 17th 2008 6:18AM]

this is most likely the brainchild of the RIAA and MPAA.

it's the quickest way to kill a burgeoning industry

[ma5t3rw1tt @ Apr 17th 2008 6:25AM]

NOTE: Everything below this line is complete dramatization and does not reflect any truth or is not real. Just way to blow off my steam!

So your going to Google.com and you decide that you want want to view pictures. You click on one but little be known, you have to pay for it. Your like WTF. So you exit the Google image search and decide to go to iTunes to purchase the new soundtrack from Disturbeds new album. Little behold, it shows $1.00 in tax. Now your really pissed off at this point. Thinking to yourself, who in the fuck makes up stupid ass laws for the internet.

Now hoenstly, this idea is fucking stupid. They are trying everything to tax the internet & its really pissing me off. This better not happen, or you might notice people may never buy things again (which thats wrong because there is always someone buying something.)

[Alan @ Apr 17th 2008 6:49AM]

I ALREADY GET TAXED FOR ITUNES MUSIC!

[HAL @ Apr 17th 2008 1:00PM]

ditto

[fanman @ Apr 17th 2008 12:14PM]

Yeah, it's called living in the UK. Cheers Steve!

[Henry @ Apr 17th 2008 6:50AM]

As everyone moves their websites and web companies to datacenters elsewhere in the world...

[hypereric @ Apr 17th 2008 8:46AM]

Bingo. And then, of course, the inevitable laws against buying from that country (maybe not a law, but at least a fat tariff), which would fatten the federal coffers and not the state, and then be quickly cirumvented by a P2P method of buying (pass sale/delivery through an anonymous country's datacenter)... which would, of course, lead straight back to illegal downloading.

Brilliant. These guys are frickin genuises.

"From the forest itself comes the handle for the axe".

[r3loaded @ Apr 17th 2008 7:06AM]

What, you only just realized?
I'm happy that people are finally waking up (no, that wasn't sarcasm)

[hypereric @ Apr 17th 2008 7:07AM]

Not that it really matters to the two headed party that runs our gubbermint, but isn't this is tad.... uh, UNCONSTITUTIONAL? If business x incorporated in state x sells product x to customer y in state y where business x is not incorporated, then(?) And that is if product x is tangible! Sure state y can say, "well, you the consumer owe us the retail tax" to customer y and then claim "state's rights" if taken to the SC, but does that mean it state y is NOT infringing on the 'free flow of commerce between states' clause at the federal level?

This whole tangible versus intangible for sales tax, I *thought*, was just intra-state, not inter-state.

So let's muddy up the water some more, just like a bookkeeper or accountant would do who is ripping you off, add a few tens of thousands
of more lines of code to the tax code that as it stands now, nobody... I mean nobody, not even a speed-reader, could finish reading in one year's time. What is it, 4 million words already? And that's just the federal tax code!

Reminds me of the SC saying in the Eighties that backing up your software or CD was legal, but then congress, via the DMCA, making it illegal.

And while on my soapbox, if you have never had a run-in with the IRS, prepare for hilarity if you have a good CPA. I had a 20 year veteran of the IRS getting 'schooled' by our CPA telling her that, "no, you need to read section 'blah blah' of IRS document 'yada yada', it will tell you what you are saying is incorrect".

How much was the tax that started the Boston Tea Party? Hint: a hell of alot less then we are now paying.

Funny this should be brought out just a day or so after "tax day".

And now, as I climb down off my soapbox, I take a bow among the enthusiastic clapping and yelling of "BLOAT!".

Thank you, and may G-d bless Amerika!

[Ysleiro @ Apr 17th 2008 10:47AM]

Man you are one smart person !!!

4 million words ??? !!! Is that supposed to be a public document that the public is entittled to read? because how is it possible to read something that big?

[hypereric @ Apr 17th 2008 11:04AM]

Ysleiro:

Actually I was mistaken. I thought there was one document that contained it all... there is not. According to the article I sourced below, congress estimates the complete federal (not counting state) tax code to be "from 1,000,000 words and 2,500 pages up to 500,000,000 words contained in 60,00 (sic) pages.". So let's take a tenth of the maximum estimate of 500,000,000, which would be 50,000,000 words.

And here is the kicker, every year they add some more words that either modifies or contradicts the previous 50,000,000 words.

http://redbluffdailynews.com/ci_8932412

"smart"? No, 99.9% of the time I pull stuff straight out of my @ss.

[Cellenin @ Apr 17th 2008 7:11AM]

I see they found one revenue source for "FREE HEALTH CARE". It has only begun kiddies, sit back and prepared to be taxed. Good forbid a Dem gets elected...you will see more "creative" taxes :)

[hypereric @ Apr 17th 2008 8:11AM]

Dem/Repub... what does it matter? It's suicide either way, just one way might be quicker then the other.

Without a viable third party candidate, it's just a magic show. And even with a third party candidate that could make it, then you have to deal with a congress that is nothing more then an orchestrated ballet that would dance circles around the President.

Hate to be a pessimist, but I was once a staunch conservative on the fiscal side, and pretty liberal on social. But since everything boils down to money (and yes, oy-ellll, the thing nobody wants to admit to needing, but has to have), I would usually support the repub side (in the past).

Now? Blech! Give me one repub candidate that would actually take a conservative stance on the economy, and has a track record of coming through on his words.

[Eli 05 @ Apr 17th 2008 7:12AM]

I was reading John McCain’s economic plan the other day and he wants to ban internet taxes permanently along with cutting taxes in general. Sounds good to me.

[AutoTom @ Apr 17th 2008 7:18AM]

well that's about the dumbest thing you can tax

morale is very important for the economy, if people cant afford to buy music, movies or books America will be headed for a much longer-term recession.

[payne @ Apr 17th 2008 8:04AM]

NO TAXATION WITHOUT REPRESENTATION!

We as engadget must unite and fight for the cuase!

[thethirdmoose @ Apr 17th 2008 8:06AM]

sales tax is inherently regressive.

[poulan @ Apr 17th 2008 8:27AM]

just think yourselves lucky that you don't live in the uk where taxes have doubled in the past 10 years under a labour government who always seems to find new 'green taxes' and the like.

[Trent @ Apr 17th 2008 8:31AM]

OH DEAR GOD when and where will the Dems and some Reps stop this nonsense. We are taxed dozens and dozens of different ways either after the fact or the taxes are built into the price of the product like alcohol, gas, etc.

If the States are revenue short, to freaking bad. Stop the freaking spending. Stop giving huge tax brakes to businesses, married people, those with children, etc.

Single people get screwd!!! I am tired of paying for other people's lifestyles and kids(child credits, free or reduced healthcare/daycare, etc.)

I HAVE HAD IT!!!

[R. Corrino @ Apr 17th 2008 6:43PM]

Uhh....

Where is the free/reduced healthcare you are talking about? I have two kids and I could sure use that.

FYI The tax breaks that having kids gets you does not even compensate for the expense of having kids. Mind you, I am not complaining. We had our kids by choice. Also, since when is being married a "lifestyle". You chose to be single good for you. Some of us choose to spend the rest of our lives with someone and create a legacy of that union.

But yeah, taxation is getting way out of hand. That's why I'm teaching my "legacies" to go into government/politics where the money is, stealing is legal, corruption is just a day-to-day affair and screwing over those that put their trust in you is your reason for living....

[Marquoz @ Apr 17th 2008 8:35AM]

Surprised that it has taken them this long to get around to doing this. It won't be much of a fight, and I think the government will win it hands down. They are just leveling the sales tax field. They should just tax people based upon the end point of where the product ends up, that way it would be like the person was purchasing from a local store. What will get interesting is if there will be state, parish (county), and city taxes involved as well in the future. This could cause insane nightmares for online companies when they try to keep up with every single individual location in the nation.

[Nutsy @ Apr 17th 2008 8:47AM]

In the US isnt all downloads already subject to a sales tax? Like in the UK everything sold weather online or offline is subject to VAT?

[Nutsy @ Apr 17th 2008 8:51AM]

Sorry hit add before i finished....

So if the downloads already have sales tax added. What there trying to do is make an extra tax for digital downloads?

Or is it that Downloads where previously except from normal sales tax? And they just want to bring digital downloads in line with other forms of purchase?

If the latter I really dont see the problem with this as almost every other country in the western world already has this.

[hypereric @ Apr 17th 2008 9:49AM]

No offense, but your premise is incorrect. To put it simply: sales tax is not a national function, it is a state-by-state function. Then you add in the commerce clause(?) of the Constitution, and one state should not be able to tax a different state's resident for buying something from that state, when said resident purchased it online/by phone/or by mail from his own, different, state (in the article it makes reference to the Supreme Court's decision on this). That is, unless the company the product is being purchased from is incorporated in both states.

This runs into at least two different things that you, as foreigner (again, no offense), might not be aware of. One is the never-ending battle of state's rights versus federal rights, and the itty bitty problem that taxes are pretty much despised in any way shape or form because roughly 225 years ago, we had a minor disagreement with England over taxes... specifically, taxation without representation.

[Bakari @ Apr 17th 2008 8:50AM]

So let me get this straight... I-Tunes sold 4 billion MP3s last year, at a dollar a pop. Let's say sales tax is 5%. That means that on every dollar, 5 cents ($0.05) is collected. This comes out to $2,000,000 (2 million) dollars to split between 50 states. That's only $100,000 dollars per state!

This doesn't sound like a windfall opportunity to me.

Granted, they wanna tax EVERYTHING, but I still think it would only add a few million to each state's coffers. This is small money.

If states want big money, their leaders and representatives should do 3 things:

1) Crack down on illegal immigration. As much as I love and approve of the "browning of America", these people don't pay taxes yet use state services that are funded by taxes. In California, this translates into tens of billions of dollars.

2) Actually represent 75% of Americans who don't want to keep sinking billions of federal dollars a day into failed wars. The money NOT spent on killing poor people on the other side of the world can be used to raise federal funding in education, infrastructure, health care, economic development, and crime prevention. This would lower state spending, thus reducing the need for increased taxes.

3) Close state and federal loopholes that allow large companies to dodge 30-60% of their taxes. Currently, that percentage of tax revenue is held in offshore accounts or is re-invested into capital in other nations, leaving it unavailable to America. This amounts to hundreds of billions of dollars every year that Americans never benefit from.

Now if only we could find some politicians with backbones...

[Chicksta @ Apr 17th 2008 9:17AM]

They don't 'split' it between states; they pay it to the state it was collected for. I already pay this (and it is 5%), so that money goes to my state, not into a coffer. Then the states add it to the same bucket they put the rest of the sales tax in... NOTHING IS DIFFERENT. It's exactly what would happen if I bought a physical product in a store.

[Bakari @ Apr 17th 2008 9:30AM]

I know they don't split it between states after collection. I did that to approximate the value of this tax.

The point is, you can't close multi-billion dollar gaps in funding like this. The reasons for these deficits are systemic and until they're addressed, you'll keep seeing band-aid solutions like this.

[Austin Taylor @ Apr 17th 2008 10:51AM]

Err,
$4,000,000,000 revenue * 5% sales tax = $200,000,000
$200,000,000 / 50 states = $4,000,000

Which is still a drop in the bucket. Average state revenue is like $10 billion a year. But please, in the future, use a calculator.

[hypereric @ Apr 17th 2008 8:55AM]

Already been there, done that. Had to grab every county's sales tax rate for an ecommerce site my old company did as the company was incorporated in every state, and their legal beagles/accountants had to have it spot on per transaction. And then the requisite administrative page to adjust each frickin county's tax rate in the US of @ss-Rape...

Thankfully, just made it so they could define each state-county-tax-rate correlation and left it at that, as it was scope creep already.

[hypereric @ Apr 17th 2008 9:03AM]

uhhhhh... replying went wacky for a moment.

The above is/was a reply to Marquoz.

[ill trooper @ Apr 17th 2008 9:05AM]

Off topic, but that's a pretty good playlist in that picture!

[maff @ Apr 17th 2008 9:29AM]

mmm, not so much..

[Mike C @ Apr 17th 2008 9:22AM]

So, can someone please hold my hand and tell me the world isn't ending. . .

They made onling GAMBLING [where people really don't give a sht about what happens to their money] ILLEGAL, yet they want to tax music downloads where, lets see, if they are looking to generate revenue will be a large percentage of each song.

I think you're going to see NAFMTA pushing Comcast for some Optikal.