More Digital Download Taxes On The Way

from the but-of-course... dept

Thu, Apr 16th 2009 3:45pm — Mike Masnick

With the economy in so much trouble, state tax revenues are being hit hard -- so, rather than figuring out ways to spend more wisely (what a concept), they're looking for ways to boost tax revenues, and are hitting up two popular online tax targets: taxes on physical goods purchased online and taxes on digital downloads. Of course, the whole (official) purpose of a sales tax was that it was supposed to be used to pay for the infrastructure that made it possible for you to drive to the store and purchase the product (e.g., the roads...). That's not always the case for online ordering (though, some will point out that local infrastructure plays a part on the delivery side). However, it's difficult to see any justification at all (other than a blatant money grab) for a digital download sales tax. But, state officials don't even seem to be looking for any real justification. They're just saying that they need more tax revenue.

Another point raised, in the article on taxing digital downloads, is that politicians don't seem to be distinguishing between digital goods and online services. The person quoted in the article suggests that's a problem, but I'd argue that the real mistake is in thinking that there actually is a "digital good." These days, pretty much all sales of "digital goods" are nothing more than a service. So if we believe that services shouldn't be taxed, then digital goods shouldn't be taxed either. They're the same thing.

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Filed Under: digital downloads, taxes

20 Comments

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Zaven (profile), 16 Apr 2009 @ 4:34pm

They Aren't Goods at all
Digital goods really aren't goods at all. Especially if they have DRM. I can't resell them, I can't do what I want with them. I can't convert them into something else (well I can but it's usually illegal).

I can understand taxing online physical purchases but digital goods should be a no no.

I propose a new law. Government officials should have to pass a test of some kind which certifies them to legislate things of a tech nature. We computer people usually have to be certified for all kinds of things. Why not the guys making our laws?
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MrScott, 16 Apr 2009 @ 5:01pm

Let's see here... If I buy something online (say NewEgg.com) and I don't pay sales tax, at what rate of sales tax do they collect? The state I live in has a lower sales tax rate than California. Would they want to collect the higher rate? Probably.

What about a state where there is no sales tax? Nevada, I believe (but correct me if I'm wrong there) wouldn't they be outraged? That would kill online commerce right there for them.

At what level would the tax be? Would it be a set level across the board, where the tax is the same no matter what state you live in? I sure wouldn't want to pay more tax online for an item than I would in a brick and mortar store.

I agree with the DRM issue, where it de-values the product. I can't re-sell it, I can't give it away, I can't loan it to anyone, I can't do jack with it but keep it for myself. Let's hope the "online store" I bought it from never goes offline. Oh no, that'll never happen. (rolling my eyes there)

And finally, what state would get that tax? Would it be the state where purchased, or the state I live in? Seems like my state is getting more revenue now than it did several years ago. My state has raised the sales tax twice in the past 6 years or so. From 5% to 7%. Yes, there are states with a higher tax rate, but where I live, the cost of living is far below the national average.

One more thing, isn't there sales tax on the shipping of these items we purchase and sent to our home? Isn't the government collecting that tax? And now they want more tax? Oh, I get it. It's not enough tax so they want more. Got it!
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IanK, 16 Apr 2009 @ 5:17pm

As long as the money will be used to improve the country's internet accessibility in rural areas, improve the technology and network infrastructure, etc, I don't mind the tax.

The problem is that the money is going to no such improvements.
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jFiveNYC, 16 Apr 2009 @ 6:44pm

Duh
You see my fellow tax payers, a national flat tax would solve everything.
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Minshi, 16 Apr 2009 @ 7:47pm

Doesn't the first already exist?
With goods purchased out of state, and transported in state, isn't a tax already levied by the state on your income? I think I remember something like that on my taxes, seeing a hit in my returns. Or is the idea that other tax payers are lying on their taxes? Why would making the companies responsible for collection and reporting be any different? And, if they are collecting for the use of the roads by ordering out of state, how do they decide who gets what money when I buy from New York, and ship to Texas? (Or over seas military?)

As for a tax on purely digital? Horrible idea. IF anything is worn by transfer of a digital good, it is the copper wires of the companies, and a tax would not go into improving private infrastructure. (I hope, I mean, I am sure the companies would love that money.)
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Anonymous Coward, 16 Apr 2009 @ 8:43pm

I don't want to be taxed for my porn site payments.

I don't want that at all.
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Andrew, 17 Apr 2009 @ 3:52am

Re: Duh
Sales Tax is at the State level, so a national flat tax would have nothing to do with that.

@MrScott, the state you live in would charge you the sales tax so you would pay at that percentage.

I live in NJ, so I already pay sales tax on NewEgg, and it's the NJ sales tax rate. If you live in a state with no State Sales Tax, then no change, no worries.
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John Doe, 17 Apr 2009 @ 4:15am

I can see where this is going; not only will pirates be sued by movie and music studios; they will be hit with tax evasion charges.
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J, 17 Apr 2009 @ 4:40am

>Digital goods really aren't goods at all. Especially if they have DRM.

Indeed. As recent cases show, if the vendor can just shut off my book or software, have I really bought any*thing* at all? Or am I just renting it? Or buying a "service" that keeps my book or game or movie from evaporating?
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Daniel, 17 Apr 2009 @ 6:56am

I wouldn't mind paying sales tax for my online purchases if my state would use the money for something useful. Like deploying broadband in places that don't have it.
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Muppet, 17 Apr 2009 @ 7:06am

How can you tax?
It's not a "good"... if it has DRM, it's a lease. It's a SERVICE... we are RENTING the SERVICE of using the licensed content.

At least, that's what the music and movie industries are telling me.

Just ask that guy who can't access digital books on his Kindle anymore...
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known coward, 17 Apr 2009 @ 7:34am

I do not see the issue
If i go out and buy microsoft word in my local staples I pay sales tax. If I buy it on line, I should still have to pay that sales tax, otherwise it gives the online retailer an unfair advantage over the brick and mortar shop.

What I am not for is for additional taxes on the digital download. But the tax rate should be the same for on line and off line goods, digital or otherwise.

A fair issue (as others have already mentioned) would be which state's sales tax is charged on online downloads? Is it the location of the on line store, or is it where the purchaser lives?
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A Dan, 17 Apr 2009 @ 7:40am

Re:
A 5-10% tax on $0 would still be $0. Since any content is being "sold" for free, there's no tax evasion.
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ulle, 17 Apr 2009 @ 7:55am

When I buy physical goods online, numerous taxes are already collected in regards to those goods. If I buy a mp3 player from Amazon.com for example, there is an import tax when that mp3 player is brought in country, the truck or train that transports the player from the port pays both state and federal taxes, the wharehouse where the player is stored pays alot of local and state taxes, then the truck that takes the player to the airport pays more state and federal taxes, the plane that it flys on pays taxes and so forth. When you actually look at all the taxes that are paid just to move a product in this country it is sickning then to listen to the government talking about wanting more taxes.
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The infamous Joe, 17 Apr 2009 @ 10:16am

Re: I do not see the issue
There is more than a two point system here.

The "location of the online store" is where the server is physically located(1), or where the website owner works(2)? Or should the taxes be where the goods are physically located (3), or where they are shipped to?(4) Is it where you are sitting at your computer? (5) If I purchase on my iphone, is it where I am physically standing when I buy(6), or where my plan originates(7) or where the nearest cell tower is located? (8)

It gets messy quick, doesn't it?
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Anonymous Coward, 19 Apr 2009 @ 11:39am

See, why the gov deserves a chunk of cash from downloads is that they paid for the infrastructure for this, too.
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Jim Durbin, 19 Apr 2009 @ 6:18pm

Collecting this Tax would shut down a lot of mom and pops
They've already passed the CPSIA, which is wreaking havoc with mommy bloggers and others who sell small products online - this would absolutely cripple everyone else.

The problem is the taxes are due, but it is the responsibility of the taxpayer to report them. As no state government has enough resources to track down every credit card purchase of its residents, the only way to get that money if people don't voluntarily comply is stick it to retailers.

It's the same reason money is taken out of your paycheck through withholding rather than quarterly payments. People learn not to miss it if they're not writing big checks.

It's another sop to large corporations who can pay for the software to figure out the tax complexities, and another big screw you to small businesses.
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Rob, 19 Apr 2009 @ 9:21pm

Justifying the cloud
This is the boon for cloud-computing.

'Download,' the key word here, means bringing something from an online location to the user's device: Laptop, desktop, mobile device, etc. Governments will present semantics and get shot down and return to their legal drawing boards to reword definitions until they get what they want; however, if customers join a service where the product stays in the cloud, there is no tax consequence.

Take, for example, the scenario of an online music store that allows you to purchase music to be played via an internet radio station. Your membership fees, and subsequent fees, (same as your fees for purchases) allow for your selection of music - but the music doesn't come to you. Instead, it stays in the cloud, transported to the online radio station.

The cloud exists above government reach.

Time to welcome the virtual nation.
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Michael Bluett, 20 Apr 2009 @ 3:07pm

Typo in the title - should be More Digital Download Taxes On The Way
Rather than "More Digitial Download Taxes On The Way", the title should be "More Digital Download Taxes On The Way"
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Julian, 21 Oct 2009 @ 6:33am

Agree with micael
hi, yes i agree with micheal, you have spelt the word "digitial" incorrectly in the title, it should be "digital". I hope this helps.
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