April 13, 2006 4:00 AM PDT

Democrats more likely to favor iTunes taxes

Democratic politicians in state capitols are more likely than Republicans to permit what critics are calling the "iTunes tax"--taxes on digital purchases of songs and movies.

A CNET News.com analysis of the states that tax digital downloads, such as those from the iTunes Music Store, shows that nine protax states have legislatures controlled by Democrats. By contrast, five of the protax states have Republican-controlled legislatures.

Overall, state legislatures in the United States are evenly divided between the two major parties: 21 including the District of Columbia are Democratic; 21 are Republican; eight are split; and one (Nebraska) is nonpartisan, according to the National Conference of State Legislatures.

The iTunes partisan divide

Nine states that tax digital-media downloads have legislatures controlled by Democrats. Five have Republican-controlled legislatures.

Alabama: D
Arizona: R
Colorado: D
Hawaii: D
Idaho: R
Indiana: R
Kentucky: Split
Louisiana: D
Maine: D
New Mexico: D
South Dakota: R
Texas: R
Utah: R
Washington: D
West Virginia: D
Washington, D.C.: D

Source: CNET News.com research, National Conference of State Legislatures

A News.com special report Thursday says most states have overlooked taxing digital downloads--iTunes purchases, e-books and movies--so far, but as online media purchases are booming, politicians and tax collectors are eyeing the area as an untapped source of new revenue.

New Jersey Gov. Jon Corzine, a Democrat, proposed in his budget (click here for PDF) that "downloaded music and videos" be taxed starting Oct. 1. The state tax agency expects legislation to be introduced in June.

Taxpayer advocates have criticized the trend toward increased taxation of downloaded media files. (This is a separate debate from the one dealing with taxation on items purchased via the Internet but delivered in physical form.)

"I'm sure that state and local officials, given enough time, will come up with a sky-is-falling study saying that if they're not allowed to tax this, they'll lose a trillion dollars a year," said Pete Sepp, vice president for communications at the National Taxpayers Union, a nonpartisan group that advocates lower taxes.

It's not always clear who authorized iTunes taxes. In Washington state, for instance, the Democratic-controlled executive branch reinterpreted the definition of "computer software" in the tax code to cover music downloads. But taxpayer advocates say that the legislature ultimately sets tax policy and is responsible for overriding any bureaucratic legerdemain.

NTU's Sepp also argues that digital downloads are already being taxed. He says that anyone connecting to the Internet through dial-up, DSL or a cable modem is already paying telecommunications taxes; anyone with an iPod paid sales taxes on it; companies offering downloads are paying property taxes; their stockholders are paying dividend or capital gain taxes; their employees are paying income taxes.

"Obviously we need to start considering limits on this sort of taxation," Sepp said.

See more CNET content tagged:
legislature, tax, Democrat, online media, margin

17 comments

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before they tax again...
...let's make them work out the budget issues with what we are already giving them before they make things worse for us. "untapped source of revenue." more like "untapped source to suck us dry even more."

taxation without representation. didn't we form this country with that as on of our thoughts in mind? what happens when representation votes on their own and not based on whom they represent? replacing them at the next election is too late.
Posted by mock (7 comments )
Reply Link Flag
RE: before they tax again...
At risk of pushing I pro-tax agenda (I'm not - just expressing an counter-point)...

"taxation without representation. didn't we form this country with that as on of our thoughts in mind? what happens when representation votes on their own and not based on whom they represent?"

Since you would only be taxed by your home state, your argument is invalid. You are being taxed with representation. The money being collected from you is going to pay for services that the state provides you and the rest of YOUR community.

As for you not agreeing with your representatives, well... VOTE NEXT TIME. And if you don't agree with the rest of the community (when they re-elect the blood sucker), The only option you have is to move... ;)
Posted by Bill The Engineer (175 comments )
Link Flag
Is it really Dem vs Rep?
This story's headline is bogus! Jeez, you would think a "news" site would do just a little research.

The motivation for taxing goods and services from the internet has nothing to do with party politics, and everything to do with state budget shortfalls.

Take Alabama for example, CNET places it in the Democratic catagory. While it is true that the current majority of the state legislature is held by Democrats, these are not your typical democrats. They tend to be very conservative. BTW, the Governor, both US senators and majority of the US representatives are Republican...

I think this article was written by someone who doesn't want to see his music taxed and for some reason beleives that the internet should remain a tax free zone.

Personally, I think we should have state taxes collected on internet sales. I also believe that NO LOCAL/MUNICIPAL taxes should be allowed. This way states continue seeing revenue AND the internet doesn't turn into a money grab by every town in the US. I think keeping up with 50 tax rates is enough.

As for the vendors crying that it too much work to keep track of state taxes. This is pure BS, they can automate the process just as easily as they automate their shipping charge calculations...

AS FOR THE TELECOM TAX, what BS. When I used the phone to place a pizza order, I don't get a tax exemption because I paid phone taxes. There is a difference between communications and products/services.

Any taxes you pay your ISP is related to the use of infrastructure and is not a blanket tax to cover everything. Besides when you purchase something on the internet (Be it Virtual or Real) it is doing commerce not communicating...

With that said, I would like to exclude subscription services and rentals from taxation, since no real goods are being exchanged and does not exists outside of the subscription.

Music from iTunes on the other hand, are actual products that just have a novel way of being delivered to the end user. As far as I know, each song purchased is yours to keep.

So is you blood boiling yet?

Brgds, Bill
Posted by Bill The Engineer (175 comments )
Reply Link Flag
Is it really Dem vs Rep?
This comment is a bull's-eye shot!
The "news" story pins McCullagh as having a republican agenda
otherwise, a poor news writer.
D
Posted by godseyesore (28 comments )
Link Flag
You of Little Knowledge - Here's the Real Deal
Really, if you don't know what you're talking about, you should
be limited to only posting 10-word blog responses.

I don't have the time or inclination to debase every one of your
points, but I strongly encourage you to do some research on tax
law and the Constitutional basis for taxation (while you're at it,
review how this country was more or less founded as an
opposition to inappropriate taxation).

After doing so, feel free to come back and post another blog
admitting that you were completely and utterly wrong in your
above comments.

For those who are reading this but do not have the time to
review tax law (I can understand - it's not highly entertaining
stuff), here's the real deal: the LEGAL justification for sales tax
has nothing to do with the exchange of products (not directly,
anyway). The rationale is that in purchasing a product, you had
to first make use of government property. For example, you go
to WalMart to buy a new DVD. You do not need that DVD to
survive - so you just used municipal roadways (and in theory,
put wear and tear on those roadways) simply to attain a
nonessential product. Sales tax, therefore, is designed as
compensation for that very fact - to offset maintenance costs for
the modes and mediums of transportation used to obtain
nonessential products.

As for government revenue, the Constitution holds that since
every private citizen has a stake in their government, their
income is generally taxable - ergo, income tax is the means by
which a government obtains the money necessary to operate.

Now keeping this in mind, let's examine the digital download
issue. You are not using any government-owned roadways,
subway systems, walkways, etc.

What you are using is some combination of 'digital
roadways' (the internet backbones). So that's still taxable, right?

Oh wait - you're taxed by your ISP? How much do want to bet
that part of the tax money you owe your ISP monthly, etc is
justified to offset the maintenance costs of maintaining those
"digital roadways"? And before you lay down your money - I
encourage you to do research.

Amazon.com is legally taxable - because in that scenario, the
UPS trucks are using the roadways that you are not, and it's a
simple "modernization" of tax code to state that you as the
buyer are still responsible for that tax. But digital downloads of
digital content are, as the author of this news story indicates,
covered by your ISP taxes.

As for politics, all politicians want money. But Republicans are
more known for their strict interpretation of tax law, so they are
generally inclined to realize that digital content is already taxed
and cannot be further taxed.

As for you - I hope you use the information presented here and
your own private research to insure that, in the future, you make
informed blog comments - not senseless ramblings.
Posted by anassassinoftime (170 comments )
Link Flag
http://www.fairtax.org/
I'm tired of the government trying to run my life through the tax code.
<a class="jive-link-external" href="http://www.fairtax.org/" target="_newWindow">http://www.fairtax.org/</a>
Posted by bobdonohoo (8 comments )
Reply Link Flag
Unsurprising
More Democrats are employed by and are clients of government.
Government is mostly the transfer of wealth from the productive to
the unproductive.
Posted by nicmart (1829 comments )
Reply Link Flag
I guess you'd call it an iTax??
If the politicos would manage their accounts like the rest of us have to, they wouldn't have to get money off people who are already getting ripped off @ $0.99 per download. So now in my state I guess it would be $1.06. I'm not surprised though...
Posted by tim4xristo (1 comment )
Reply Link Flag
Charge the TAX!
Charge it. Otherwise we'll all have to track it on our own because of 'use tax'. Make it easy on the vendors though, federal law allowing each state to only have one tax rate instead of one per county.
Posted by jmguthrie (1 comment )
Reply Link Flag
Sloppy reporting . . .
. . . for Cnet to say it is more of a Democrat issue based on a nine-to-five split of state legislatures without even paying attention to who is considering such a tax or where they are in their legislative calendar.

In any case, sales tax is fair game for these downloads -- anything other than standard sales tax is completely unacceptable.
Posted by decisivemoment (7 comments )
Reply Link Flag
I already pay tax on all iTunes downloads
Here in Indiana (republican ruled, unfortunately) I already pay
tax on all iTunes downloads.

For instance, a $9.90 album includes $.59 tax.

Just a hint here, a little detail would be nice, such as which
states are taxing us for downloads and which are not. My
guess is that it is all based on the address you list when you
sign up. Or, do they figure the state from your IP address
(provider) somehow?
Posted by Byronic (95 comments )
Reply Link Flag
A map: which states are taxing
Thanks for your note. As we mentioned in the 2nd paragraph, we have a report with the map of taxing-vs-not-taxing states you wanted:
<a class="jive-link-external" href="http://news.cbsi.com/The+tax+man+cometh+after+iTunes/2009-1022_3-6059914.html" target="_newWindow">http://news.cbsi.com/The+tax+man+cometh+after+iTunes/2009-1022_3-6059914.html</a>
Posted by declan00 (848 comments )
Link Flag
Double Taxation
By taxing the download and then taxing the recipient of the
revenue from the download
Posted by Dale Sherbourne (5 comments )
Reply Link Flag
Republicans give up tax money?
I seriously doubt it! With the way they spend, they need all the taxes they can squeeze out of us. Didn't you know that we are cash cows to be milked dry?
Posted by casper2004 (267 comments )
Reply Link Flag
The Real Deal - Taxation Explained
The LEGAL justification for sales tax has nothing to do with the
exchange of products (not directly, anyway). The rationale is that
in purchasing a product, you had to first make use of
government property. For example, you go to WalMart to buy a
new DVD. You do not need that DVD to survive - so you just
used municipal roadways (and in theory, put wear and tear on
those roadways) simply to attain a nonessential product. Sales
tax, therefore, is designed as compensation for that very fact -
to offset maintenance costs for the modes and mediums of
transportation used to obtain nonessential products.

As for government revenue, the Constitution holds that since
every private citizen has a stake in their government, their
income is generally taxable - ergo, income tax is the means by
which a government obtains the money necessary to operate.

Now keeping this in mind, let's examine the digital download
issue. You are not using any government-owned roadways,
subway systems, walkways, etc.

What you are using is some combination of 'digital
roadways' (the internet backbones). So that's still taxable, right?

Oh wait - you're taxed by your ISP? How much do want to bet
that part of the tax money you owe your ISP monthly, etc is
justified to offset the maintenance costs of maintaining those
"digital roadways"? And before you lay down your money - I
encourage you to do research.

Amazon.com is legally taxable - because in that scenario, the
UPS trucks are using the roadways that you are not, and it's a
simple "modernization" of tax code to state that you as the
buyer are still responsible for that tax. But digital downloads of
digital content are, as the author of this news story indicates,
covered by your ISP taxes.

As for politics, all politicians want money. But Republicans are
more known for their strict interpretation of tax law, so they are
generally inclined to realize that digital content is already taxed
and cannot be further taxed.
Posted by anassassinoftime (170 comments )
Reply Link Flag
Hawaii taxes downloads twice
A Sales Tax on downloads is nothing. Hawaii doesn't even have a "sales tax" - they call it an "excise tax" and apply it to the vendor who simply passes it along to the consumer. Not only does Hawaii already tax the download at the point of download (4.166% - Hawaii also taxes you on the tax!), if you use a prepaid itunes card that you purchased at an Apple store in Hawaii, you've already paid 4.166% tax on the card - making the state's take 8.332%. And Apple's supplier probably had to tack on the 0.5% wholesale excise when it sold Apple the cards. Economists estimate if Hawaii converted to a sales tax from its current scheme, the rate would be around 14% to generate the same amount of revenue to the state's coffers.
Posted by gilwell (1 comment )
Reply Link Flag
 

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