Taxation of Digital Downloads

One of the benefits of purchasing music online versus a physical CD from the store is that you don’t get taxed, at least here in the United States, in most states. With digital downloads becoming popular, states are trying to push a new “iTax” that would change things. Digital downloads have become a massive industry and states realize this.

There are a few states in the United States already that have put laws into place to collect taxes on digital downloads. States like Nebraska, Tennessee, Indiana, South Dakota, and Utah are already banking on the billions of dollars a year spent on e-commerce purchases and more specifically, digital downloads of music and movies. As you can imagine, with five states that have already enacted new laws in 2008 alone, more states are certain to follow.

Recently News.com reported about this and how states may start taxing iTunes. They say that in addition to the five states who have already put an “iTax” type of law into place, about four other states have considered it. They say, “If you enjoy buying music from iTunes, movies from Amazon.com’s Unbox, or computer software from anywhere, we warned: the halcyon days of tax-free digital purchases may be over.”

After hearing about this, we can’t help but think of the “Amazon Tax Bill” that New York legislators passed. New York wanted to bank on the millions of dollars that the state could make simply off of taxing online retailers. Because the Internet didn’t exist when most tax laws were written, there will probably be some new laws and bills put in place over the next several years so that States can benefit as much financially from the Internet as possible.

As a side note, several people have pointed out that there shouldn’t be taxes on digital downloads as a reward to those who buy them because it is the greenest way to buy music, movies, and software.