Assemblyman Charles Calderon of California wants the state to consider imposing a tax on new media downloaded from the internet. He is specifically targeting goods like iTunes which are currently exempt from tax. He claims that the sales tax should apply equally to online and in store purchases.
I think he might have a point.
Please, put away your rotten tomatoes. Don’t hurl them just yet. I don’t think that California will actually implement such a tax. It’s politically dangerous (Republicans in California are already labeling it a “new tax”) and administratively, it could be a nightmare to enforce. The internet is a vast and complicated place when it comes to taxation – which is why many goods are still sold tax free.
On the other hand, many goods are not tax free over the internet. For the most part, the nexus doctrine used in catalog and telephone sales tends to apply, and it has worked fairly well. If I buy a piece a dog bowl from LL Bean over the internet, as I did recently, I pay sales tax.
Why should music be taxed differently? If I buy a CD from amazon.com, I will pay sales tax on that purchase – why should my iTunes be tax exempt?
Kelly, as I understand it, Amazon and Land’s End have decided to collect sales tax… that is, it isn’t law… if I’m right, why isn’t Itunes doing the same thing? And do you know, if I buy a CD from Amazon, does California get the tax since that’s where I am?
Great points about expanding the California sales tax to cover digital goods. After all, it is a form of consumption and that is what is supposed to be taxed by the sales tax. Also, California needs to update its tax base, rather than raise the already high rate as many people suggest in order to raise revenue.
Anne – Amazon doesn’t have to collect sales tax in CA because it doesn’t have “nexus” – a physical presence. However, California buyers owe “use tax” at the same rate and you can report it on your CA income tax form 540.
iTunes doesn’t need to collect sales tax from you and you don’t owe use tax because what you are getting isn’t “tangible” which is what CA sales tax applies to – “tangible personal property.” Some states interpret that term more broadly than does CA and some states have updated their law to include digital goods, such as New Jersey.
As we continue to consume more intangibles and services, and less tangible personal property, California’s sales tax base erodes and is one of a few reasons that CA has budget problems. CA needs to broaden the sales tax base, lower the rate and can even do that in a way that raises revenue if needed. I have more on this topic at a website I call “21st century taxation” which is what we need to do with our 20th century federal and state tax systems – move them into the 21st century ways of living and doing business.
http://www.cob.sjsu.edu/nellen_a/TaxReform/21st_century_taxation.htm