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« Get Ready for the iTax | Main | Money for Volkswagen In Bredesen's Tax Plan? » April 24, 2008Here Comes the iTax
As I warned you last December with this post, Bredesen's Revenue Commissioner and his staff were preparing "technical corrections" legislation that would make a variety of amendments to the state's tax code, and result in tax increases for Tennesseans. (My blog post echoed and expanded on a Tennessee Republican Party press release issued three days before.) Now, as the Bredesen administration faces a $500 million revenue shortfall, the administration may be looking at taxing digital downloads as a way to fill part of that hole. The Waller Lansden law firm in Nashville has released a summary of the draft "technical corrections" legislation, and it contains not one but several tax increases. The first item - the Digital Products/iPod tax - appears to be the biggie. And while some of the technical corrections really are just that - corrections - the Digital Products/iPOD Tax is a wholly new tax on a class of products that have never been taxed before in Tennessee (or, frankly, most states). You could, presumably, even have to pay sales tax when you "rent" a movie digitally via Comcast, given that you are paying to download digital media . As the legislation is still in draft form, there is as yet no "fiscal note" assessing its impact on state revenues, but if this stays in the legislation and somehow passes the legislature, it could be a rather large tax increase given the growing popularity of digital media downloading. Update: California Democrat legislators also want to tax digitally-downloaded purchases. Orange County Register "Capital Watchdog" columnist Brian Joseph discusses the iTax and how Democrats are trying to get around the law that requires a 2/3rds majority to pass a tax increase in order to pass it through the state legislature without needing to secure Republican support. Joseph says a 2006 report by CNET News.com found that 15 states and the District of Columbia tax media downloads. A November 2007 survey by the Washington state Department of Revenue found 21 states tax cell phone downloads. He also points out a major flaw with state taxes on digital downloads - a state's jurisdiction ends at its border. The state can only compel companies based in California to collect taxes. iTunes, or any other download site, can be based anywhere in the world. So what do you do?Tennessee has a "use tax" too. It's a de facto voluntary tax because the state does not have an equitable, effective enforcement mechanism. The state government can track your out-of-state furniture and rug purchases thanks to reciprocal agreements with North Carolina and Georgia, for example, but there's simply no way for them to know about that candy bar you bought just south of the state line near Chattanooga, or that book you bought in the Austin airport before catching your flight back to Tennessee. It will be interesting to see how they try to enforce the sales or "use" tax on digital downloads. I download iTunes to my laptop. Sometimes while I'm in other states. How are they going to tax that? Answer: Not with my help. Posted in Tennessee Government News
Comments
So many words, so little reason for them. You are already being taxed. Posted by: brittney at April 24, 2008 3:35 PMACK got spun by the administration. Yeah, it is true, the administration began taxing iTunes downloads on Jan 1, 2008, before which time they were not taxed. You'd think I'd have known that, given that I'm a big iTunes user, downloading music and tv shows, but I generally don't peruse my iTunes receipts becausem, well, in Jobs I trust. However, iTunes downloads are only a part of the administration's overall target list for taxing digitally delivered products and services. There are plenty of digitally-delivered products are not currently taxed in Tennessee and the "technical corrections" bill contains a laundry list of things that are not currently taxed but may soon be, according to the analysis of the bill by the business tax law experts at Waller Lansden. You can read the details at http://www.tngop.org/wordpress/2008/04/update-april-25-2008/ The administration is also claiming the changes will be revenue neutral, but that's because they are claiming the items are already subject to the state's "use" tax, if you don't pay the sales tax. But of course the Use tax is a de facto voluntary tax as the government has no equitable and effective enforcement and collection mechanism, and probably 99.99999999 percent of all "use" taxes are never collected, and never will be. If you buy a candy bar at a convenience store across the state line in Kentucky and bring it into Tennessee and eat it in Tennessee, you technically owe Tennessee the "use" tax on that item, which is identical to the state's sales tax. Do you pay it? Me neither. Nobody does. The use tax is a joke. So to claim that the new tax rules will be revenue neutral is very misleading - on paper they may be because on paper the state is owed the revenue already via the use tax, but if it was collecting the money already via the use tax the administration wouldn't be trying to collect more sales taxes on those items. Bottom line, this legislation would make people pay the sales tax on more things than they currently pay the sales tax on, which qualifies it as "new taxes" and a revenue-raiser. Posted by: Bill Hobbs at April 25, 2008 3:10 PMPost a comment
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Tennessee Gov. Phil Bredesen's Department of Revenue is planning to tax your iTunes downloads, and all other digital media you purchase online and download including music videos, movies, news and entertainment programs, music, ringtones and electronic books. Under current law digitally delivered goods are not taxable unless delivered in a tangible form - if you buy software online and receive it digitally, there's no sales tax, but if you also request and receive a copy of the software on a disk, there is.