More States Charging Taxes for iTunes, eBooks

Nearly 25 States Charge Taxes on Digital Goods

Through Marketplace Fairness Act, which allowed the 45 states, including Columbia, to collect sales tax, online retailers were mandated to charge tax on subscribers who are residents of the states.  Taxed digital goods and services include downloaded music (iTunes in particular), e-book, ringtones, and TV show and video streaming.

States, according to Michael Mazerov of Center on Budget and Policy Priorities, are losing valuable sales tax revenue as consumers have shifted to digital music, books and movies. Thus, most states see their recovery through taxing digital goods. These states tax digital purchasers based on the location of their billing address.

The specifications of this tax vary from state to state. Some state taxes digital content without considering the manner of delivery, while some taxes downloaded music and videos, but not when streaming through Netflix and Spotify. The legislation would not create new tax laws considering the existing laws which they allow the states to enforce.

Online sellers are taxed if they have “physical representations” such as stores and warehouses, and/or they have store(s) outside which earns more than a million sales. However, some critics argue that digital goods should not be taxed like physical goods since the users are only paying for license and not tangible physical property.

To tax critics like Americans for Tax Reform, buyers, probably residents from a state, who travel to another state, would end up paying tax twice if both states, where they are from and they travelled to would tax the same digital good. Thus, to prevent this, Download Fairness Coalition pushes additional legislation that creates national guidelines, guidelines which Stephen Kranz, a partner of Washingon D.C.-based law firm McDermott Will & Emery, said that were not yet established.