More and more states, especially ones with Democrat controlled legislatures, CNet points out, are dipping into the digital media pot by imposing taxes on purchased downloads.
The provided rationale is to loosen the distinction between tangible and intangible goods.
A CD bought in a retail outlet, online or off, is taxable, and a growing number of legislators and tax agencies are writing new laws or reinterpreting old laws in order to levy sales taxes on downloadable music from high-profile services like iTunes.
Critics are crying foul for a few reasons:
The National Taxpayers Union argues that downloads are already taxed in several ways: through taxes imposed on Internet connections through local ISPs; through sales tax on equipment to use the downloads, like the iPod; through company property taxes; through dividend and capital gains taxes; and through digital media employee income taxes.
Others contend that state taxes should not apply to companies without operations in those states.
For example, a music download company based in Okalahoma uses no resources in Kentucky. Current statutes support this view, and Walmart online offerings are subject taxes that Amazon.com is not.
Still others argue that, in states like Kentucky, it is not the legislature that is considering or imposing taxes on digital downloads.
It is the state’s tax organization doing so by redefining preexisting tax laws, codes, and definitions.
Most states, however, only tax “tangible” purchases, a trend that may be shifting as more and more money is exchanged for digital goods.
Perhaps in the future, one will see sales tax levied on digital weapons purchased for online role playing games, as they may (and will) be considered “personal property.”
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