Are you paying the iTunes and digital downloads tax?

July 9, 2013 — Leave a comment

According to the Association of American Publishers and the Book Industry Study Group, e-book sales rose 44% to $3.04 billion in 2012. Similarly, digital music sales were up 9.1%, with digital transactions making up a record 37% of all album purchases, according to Nielsen.

As seen in the statistics above, digital transactions are on the rise; and in turn, that $10.99 e-book or $1.29 iTunes song may be more expensive than you think. With Minnesota’s recent provision in its state tax bill, it’s residents will be the latest consumers facing taxes on digital products.

“As consumers switch to digital music, books and movies, many states discovered that they were losing out on valuable sales tax revenue and decided to do something about it,” said Michael Mazerov, a senior fellow at the Center on Budget and Policy Priorities, a nonprofit think tank.

Currently, digital purchase taxes vary by state. In Washington state, for example, it taxes digital content regardless of how it is delivered. Conversely, other states tax music and videos that are downloaded, but not when streamed through a service like Netflix or Spotify.

The following are some more of the differing taxes by state, according to CNNMoney:

Are you paying the iTunes and digital downloads tax?The digital downloads tax will certainly be at the forefront in the U.S. House of Representatives’ discussion of the Marketplace Fairness Act legislation. Presently, states can only tax Internet sales of companies who have a physical presence within their borders. Under a 1992 Supreme Court ruling, this means that online retailers can charge a sales tax in some states but not in others.

The Marketplace Fairness Act (MFA) would exempt those online retailers who make less than $1 million in nationwide sales from collecting taxes. The legislation wouldn’t create any new taxes on digital goods, but it would let states enforce the laws that are already in place.

The following video shows John Donahoe, CEO of eBay (one of the largest online auction and shopping websites in the U.S.), and his company’s pro-MFA legislation views.

On the other hand, tax reform groups and especially, the Download Fairness Coalition, argue that digital goods shouldn’t be taxed the same way as physical goods since users are often paying only for a license, not “tangible physical property.” Critics, like Americans for Tax Reform, are also concerned “that different states will try to tax the same digital purchase. So a resident of Washington state that buys digital music while traveling in Utah could end up paying sales tax twice.”

Opponents are making a push for national legislation which would prohibit this situation from happening. Now, are you wondering if your state taxes your digital purchases? A map with links to the 50 state tax websites can be found here.

JDKatz: Attorney's At Law

JDKatz, P.C. is a full-service law firm focused on tax law and estate planning. We are dedicated to minimizing your existing liability and risks while providing valuable tax planning to streamline your tax issues in the future. Please call us at 301-913-2948 to schedule an appointment to meet with one of our trusted attorneys.

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