States Seeking Levies on Digital Downloads

evdubs writes "15 states and the District of Columbia currently tax online media, with others eager to begin their own taxes. The RIAA estimates that domestic sales totaled $503 million last year, but that figure doesn't include movies, e-books, online video games and other forms of digital media. Perhaps the most interesting point in this article is the way states, looking to start taxing online media, are trying to use the interpretation of previous law and apply it to digital media. In Washington, politicians are using their definition of software (already taxable), 'a set of coded instructions designed to cause a computer...to perform a task,' to justify taxation of online media because 'they cause some action by a piece of hardware to play them.'"

then why do business pay taxes at all?

[way2trivial]

require that businesses volunteer the info

JUST LIKE SALES TAX on in store sales..

do you think any seller of legal electronic media (movies, music, photographs) is not going to be a large enough company to plan on compliance with their local laws?

Re:Anyone have a list of the states?

[evdubs]

As pictured in the article, the 15 states are Maine, West Virginia, Indiana, Kentucky, Alabama, Louisiana, Texas, South Dakota, Arizona, New Mexico, Colorado, Utah, Idaho, and Washington.

explanation: Sales and Use tax in PA

[guacamolefoo]

There are a number of threads here with points worth responding to. I'm too lazy to put them all in the respective threads, so I put them here in one place. Here is the skinny on Sales and Use tax issues, at least in PA. It applies to taxability of digital downloads specifically but touches on other issues as well.

1. Sales tax:
To be required to collect sales tax from customers, businesses must have a nexus with the state. Physical presence is sufficient, as Lynn Swann found out from selling his footballs. Sales tax is collected by businesses, not consumers. Physical things (tangible personal property) must be sold to the end consumer in order for the sales tax to be due in PA. Services (some) also incur sales tax. For property sales, however, you needed tangible personal property, not intangible ones.

2. Use tax:
This is required to be paid by customers (purchasers of tangible personal property). If I buy a sofa in MD (5% sales tax) and bring it to PA (6% sales tax on a taxable item of personal property), I am required to pay sales tax. I can get credit for sales tax paid to MD (see: http://www.revenue.state.pa.us/revenue/lib/revenue /rev-227.pdf [state.pa.us]), but I haveto pay the additional 1% to PA on a use tax return.

From a practical standpoint, use tax is paid in two scenarios, primarily. First is by businesses with multijurisdictional operations that transfer property between states. Second is by consumers who buy cars elsewhere and register them in PA.

3. Sales and use tax issues - tangible personal property:
One of my partners does SALT work (State and Local Taxation) and he specializes in going to businesses to do reverse audits to reduce taxes paid going forward by changing business practices and in appling for refunds for improperly paid sales and use tax.

One big issue with sales and use tax is whether something qualifies as tangible personal property. Software has been a big issue in Pennsylvania. The Graham Packaging case decided that issue:

http://www.revenue.state.pa.us/revenue/cwp/view.as p?a=318&q=252626 [state.pa.us]

http://www.courts.state.pa.us/OpPosting/CWealth/ou t/652FR02_9-15-05.pdf [state.pa.us]

The relevant stipulated facts of the case are as follows:

In connection with the appeal to this court, the parties entered into a
stipulation of facts which states, among other things, that: (1) users of software programs do not own the software program; rather, users purchase the right to use the program in accordance with the licensing agreement and copyright law; (2) computer disks are often provided free of charge to multiple user license holders; (3) computer disks do not give users rights of ownership to the software; (4) computer disks remain the property of the licensor of the software program; (5) the physical delivery of the computer software program can be accomplished without the transfer of the computer disk and the computer disk is not necessary for the use of the program; (6) the physical quality of the computer disk does not affect the price of the computer software program; (7) Graham paid Dell for two-year license renewals of software licenses previously purchased by Graham; (8) the delivery of the computer software sold to Graham was originally accomplished by disk; (9) the license renewals at issue did not involve computer disks; and (10) the original computer disks were obsolete at the time of the license renewals. See Stipulation of
Facts (filed March 2, 2005).

Before Graham Packaging, there was a big difference whether software was downloaded or delivered via CD. To wit: say I want an AV program. If I want the most sales tax advantaged way of buying one, I purchase and download AVG Antivirus instead of buying a copy of the Syman