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States Seeking Levies on Digital Downloads 249

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.'"
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States Seeking Levies on Digital Downloads

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  • by nurb432 ( 527695 ) on Friday April 14, 2006 @10:31AM (#15129106) Homepage Journal
    As the government/corporations keep going down this road, we will all just have to go back something like the old BBS days where everything is private and you have to know someone to get in the door. Which to be honest, sounds good to me.

    This is also getting out of hand. Next they will assign an arbritary value to OSS software ( well, lets see. windows is xxx and office is xxx and and and .. so this cd of linux is worth an estimated 10000, so you owe us 100 bucks or we put you in jail )
  • Thats Why.. (Score:5, Interesting)

    by bigattichouse ( 527527 ) on Friday April 14, 2006 @10:32AM (#15129121) Homepage
    thats why I've already started giving away some of my software for free with support. By signing a support agreement, my tools can be licensed for use for free by your company... I'm not selling them, you can't tax them.
  • I don't get it (Score:5, Interesting)

    by dsgitl ( 922908 ) on Friday April 14, 2006 @10:33AM (#15129128)
    In Kentucky, I pay $1.07 for a song from iTunes. For some reason, my state feels the need to collect on content that didn't originate in the state, isn't served by an employee that works in the state, isn't stored on servers inside the state, and isn't necessarily even bought inside the state (a purchase made on a laptop while on vacation, for example).

    For me and my state, adding that $.08 to cigarette tax would be much more productive. I wish they would do that instead.
  • Genius! (Score:4, Interesting)

    by proverbialcow ( 177020 ) on Friday April 14, 2006 @10:33AM (#15129131) Journal
    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

    ...except that the media file itself cannot cause the hardware to play it. Software must be employed to decode the file. Double-clicking on the file's icon requires more software, the OS, to load the software required to decode the file.

    This'll take about five minutes to be thrown out. *yawn*
  • By that rationale... (Score:5, Interesting)

    by danpsmith ( 922127 ) on Friday April 14, 2006 @10:34AM (#15129135)
    ...a DVD, a CD, and other types of media that are just media are also "software." In a CD's case for example, the CD causes a CD player program to react and play a tune, so is the CD now software? These idiots don't even understand the distinction between "data" and software. Let me give you a hint morons: software is executable, data isn't, the two are not the same at all. Data, in and of itself, causes nothing to happen. You could double-click on an MP3 all day, if you have no player installed it doesn't work. We seriously need to start getting people into office that understand computers at least to this basic degree.
  • by rolfwind ( 528248 ) on Friday April 14, 2006 @10:37AM (#15129166)
    No taxes to pay on free stuff.

    This hardly affects me as a consumer (open source, and my pay-for entertainment ALWAYS comes on a disc) but being in the software industry I'd like to know - didn't the federal government have a ban (at least temporary, for the next several years) on internet sales taxes?

    How would it get around this?
  • This is expected... (Score:5, Interesting)

    by zappepcs ( 820751 ) on Friday April 14, 2006 @10:37AM (#15129168) Journal
    This is expected, along with other twisted plot points in the struggle for the world to become completely flat with regard to regulation, business, and other things of huge impact to joe public.

    Some of the processes to watch are: Immigration, offshoring, outsourcing, foodstuffs regulation, computer and internet regulation and taxation.

    The world is very busy at becoming flat in many regards. Something tells me the French will always be a sore thumb, but everyone else is interested in commerce and becoming either wealthy consumers or those that supply them. Once the regulatory grip slips loose a bit, watch how farmers start selling their products both without the protection of the government, and without the stranglehold on how they can sell their products. Food has been used as a political tool for too long, as technology has been. The old guard are losing control of all the things that kept them in power for ... well, up till now. As they lose power and control, they will do many twisted things to try to retain it.

    As for taxation, without funds from taxation, governments become rather helpless groups of mislead individuals. This is just one *SMALL* sign that its time to revamp the tax schemes here in the US. The old ways are falling behind so quickly that it will be difficult to keep up... we need someone to start a wiki or something... A place where government types can go to learn about the brave new world they are facing and how they can effect a stable government within it.

  • by punkr0x ( 945364 ) on Friday April 14, 2006 @10:40AM (#15129196)
    In New York they have a line on your tax return to report any online purchases you made over the past year but didn't pay tax on. They even suggest a value for you to pay if you aren't sure! (How nice of them). I think you're also supposed to report any (non-taxable!) purchases made on indian reservations, so they can tax you for that too. How the hell did we get to this point?
  • by VGfort ( 963346 ) on Friday April 14, 2006 @10:47AM (#15129251) Homepage
    That seems to be what the State Governments are saying. A lot of people sell stuff at garage sales and dont report the sales as taxes.

    Reminds me when I was 11, my friend was mowing a few lawns that summer for money. He didnt make much maybe $60 bucks. But the IRS guy that came by their house was telling him and his parents he needed to file taxes the next year. I'm sure the IRS guy was being technically legal, but it seemed more anal to me.
  • by Esion Modnar ( 632431 ) on Friday April 14, 2006 @10:56AM (#15129341)
    how they could possible determine who owes what.

    How about who owns what? With DRM'd music, and Right-of-First-Sale compromised, downloading some music is not quite as clear cut an ownership as buying a toaster. (I can re-sell a toaster, or a CD, but how can I re-sell a DRM'd music download?)

    I suppose they could just call it a service and put a sales tax on all services. Maybe some states already do this (?).

  • Re:Personal Property (Score:4, Interesting)

    by ScriptedReplay ( 908196 ) on Friday April 14, 2006 @11:05AM (#15129428)
    Not to worry, they'll be taxing you the license you bought - just as it is for a software purchase. Buy a retail version of Win XP in a brick-and-mortar store, pay tax. And it's not just because the CD constitutes a tangible asset, since the intrinsic value of a CD is minuscule. So it's not even an issue of 'software programs' - they'll be taxing license purchases, be it for software, music, movies, podcasts or whatever novelty will pop up next year. Just as soon as someone hits them with the right clue-stick.

    Well, as one thing leads to another, you'll have taxes on subscription music services, then or general pay-for 'net subscriptions ... next thing you know, you'll have to pay tax on that /. subscription. Now that would be a news item.
  • by Shivetya ( 243324 ) on Friday April 14, 2006 @11:10AM (#15129461) Homepage Journal
    don't worry, those driving SUVs are paying for them. The burn more gas and hence pay more in taxes to travel the same distance as others. They are usually more expensive to repair as well.

    I look at it this way, if someone wants to buy the big SUV, pay the premium for doing so, and then to top it off pay for all that extra gas I say LET THEM!.

    Besides there are quite a few people who can justify owning one for hauling the family. Singling out SUVs has gotten so low-brow it makes me wonder why people want to follow such a stupid path.

    As for cigarettes, states are looking elsewhere because all their taxes are having the effect they claimed they wanted : reduced smoking. Problem was when the smokers quit it meant someone left the voluntary tax roles. Lottery tickets certainly don't make up all that money so its got to come from elsewhere.

    I look at the bright side, my state has a near 1 billion dollar surplus because it doesn't specialize in income redistribution which what most states running a deficit are doing. They have promised so much money and service to people they have no choice but to scramble for every last penny.

    Instead of asking why they aren't taxing some people more you should really be asking why are they taxing it in the first place. Too many spend more time wanting to inflict financial burdens on others than the more logical idea of reducing them on all.
  • Sure, but if I run an online business in New Hampshire (where there is no sales tax), and this is where my servers are and where the credit-card processing occurs, and sell digital downloads to people all over the country and world, there's no way that I'm going to be able to track where the recipients are and pay tax in their jurisdiction. Heck, I'm probably never even going to ask the recipients their addresses. Why do I need to know? If they have a credit card, that's pretty much all I care about.

    If Washington, DC wants to tax online stores that are based there, more power to them. All it's going to do is drive high-tech business out into more friendly jurisdictions. But they're going to have a hell of a time trying to tax businesses that sell to DC residents, especially because those same residents will in all likelihood be lying through their teeth to avoid paying the same tax.

    The whole dilemma with online purchases boils down to figuring out where the "transaction" really occurred. If I'm in one state and the server is in another and the company that owns the servers is in a third, which State's laws govern the sale? (Normally there is a contract at some point specifying which, and it's usually the state of the company in control of the online store, but I could think it could be argued that it should be otherwise.) And how about when the sale is done internationally? There it's easy to have situations where the buyer, seller, and the processing bank are all in separate countries; you could even introduce additional intermediaries if the buyer was using a PayPal or eGold type service.

    The problem here is that the laws we've created to govern "transactions" are based around a model where two people get together and exchange money for goods or services in physical space. It just doesn't translate very well to the amorphous nature of the internet, where businesses can exist online without any real presence in the physical world, besides a few cubic inches in an equipment rack somewhere.
  • by smbarbour ( 893880 ) on Friday April 14, 2006 @12:46PM (#15130320)
    Why would you need to know their address if they are paying by credit card? Merchants should gather address information for AVS (Address Verification Service) so that a) It verifies that the person submitting the credit card information knows the billing address for the card. This along with the 3 or 4 digit code that is only printed on the back of the card reduces the amount of fraud that occurs (which is good for the industry). b) Providing the information to your credit card processor will ensure that the transaction is qualified or at least mid-qualified which in turn, means that the processor takes less of a cut from the sale.

    If the "transaction" occurs where the company is, then my "company" is at the bottom of the Atlantic Ocean, far from the coast. Since there are no services that run out to there, the company's servers are hosted elsewhere and the company's mail is delivered to me (since the postal service doesn't deliver there). The "company" redirects all of it's profits to me (which I will dutifully report as income). That way, no business is being conducted within the jurisdiction of a taxing body, but I'm still reporting my income, so I can't be charged with tax evasion.

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