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January 24, 2012

O'Malley's digital download tax on ringtones, music, ebooks and more

Maybe you haven't heard: One of Gov. O'Malley's tax proposals this year is to extend the sales tax to digital products. That means digital media you download: ebooks, apps, music, newspapers, videos, ringtones, audio greeting cards and more could become subject to the state's sales tax of 6 percent. So that 99 cents iTunes song you buy would cost around $1.05.

That app you buy would go up a bunch of cents.

:: Here's the Senate bill, put in at the request of the O'Malley administration. The part about digital products starts at page 33.

The Maryland Chamber of Commerce is skeptical of this tax idea by O'Malley. Their vice president of governmental affairs, in a blog post today, said the organization will work to ensure this digital download tax doesn't become a repeat -- a Tech Tax 2 -- of the failed proposed tax on tech services in 2007.

For years, there's been a steady debate in Maryland about how to address the "sales tax loophole" on the Internet. Consumers who buy goods -- digital and physical -- from online sites that don't have any physical location in Maryland aren't charged the sales tax by the online retailer. Bricks-and-mortar retailers complain about unfair competition. (Note: See my second update below: there is a provision for this type of tax collection in the proposal.)

What other states are taxing digital downloads? I scoured the web for some info on this and I found a Wikipedia list; a proposed bill last year in Congress tried to solve the "who can tax what" conundrum when it comes to digital goods; and Amazon recently striking a deal with Indiana to collect sales tax a few years from now.

On the one hand, states such as Maryland are hurting for tax revenue to close budget holes. Maryland collects taxes on the sale of music CDs, for instance. But when that same music is digital and electronically transmitted, it does not, thus missing out on revenue.

On the other, there may be small businesses out there engaged in the digital download business who worry about new taxes.

Where do you stand?

If you're a ringtone addict, do you think you should now pay a tax? Or, if you're an iPhone app developer for instance, what does it mean to have to collect sales tax on your app sale in Maryland or elsewhere? How would this complicate your business? Or is it not that big a deal?


UPDATE at 3:25 pm: I've gone over the bill a little more closely and, of course, I have more questions. For one, how would the state go about taxing "chat room discussions" and "weblogs" (page 34)? Would this be where a user pays a fee to read or participate in these types of online media, and thus a tax is assessed and collected? (i.e. Online news paywalls?) And what about digital streaming services, such as Netflix and Amazon Prime and other services on Apple TV and Roku, for instance? The bill talks about taxing downloads, but is vague on the act of "streaming."

Update #2, at 3:50 pm: Ok, folks, some more closer reading of the bill indicates that there is indeed a so-called "Amazon tax provision" -- see page 42, 11-701(b)1 -- "engage in the business of an out-of-state vendor." O'Malley, like many other governors, does appear to want to collect sales tax from Amazon affiliates, to use the Amazon example, based on my read of the bill.  A business that's sold more than $10,000 worth of goods in Maryland over the previous four quarters, starting July 1, would be subject to collecting sales tax from customers. This type of bill provision has failed in the past, I'm told. 

This is an archived version of the technology blog. For updated coverage, see the current baltTech location:
Posted by Gus Sentementes at 1:02 PM | | Comments (10)
Categories: *NEWS*


Tax increases to balance a budget hole that he caused by not cutting spending. Now that makes a lot of sense to me. This is a typical Democratic response to problems they created. Where is the fairness in that?

The general public is chocking, with GAS prices risinng, alon with everythingelse, and all our elected offficials can do is try think of every way they can to throw more taxes our way. When is this BS going to stop, and they start taking care of our people?

I want more details! How would this work? Would the retailer charge me the tax? Based on billing address? (Can I get an out of state one?)

Who the heck buys ring tones? I'm more concerned with Valve's Steam service. Would games be included? If they want to tax 99 cent apps I bet they'd love to get those $60 games too..

What about those of us who use gift cards purchased at a store? I've been taxed once, now twice.

So how would they handle downloads that are done from computers on military bases such as Aberdeen Proving Ground and Fort Meade? They are federal installations and I believe exempt from sales tax on your typical "over the counter" / "cash register" transactions...

This is not only brilliant, but it's justified. People complaining about it are speaking nonsense. If you buy something, you pay tax on it ... what's so difficult to understand about that?

Also, to "Huxly," you don't pay sales tax when buying gift cards so your comment about being taxed twice is just plain wrong.

These are taxes we used to pay when buying physical media. The shift to digital media has caused a tax revenue gap.

Did you also know that you are required to pay sales tax on items purchased out of state? For example, all of the people who will drive to Delaware to buy a TV or something costly to avoid sales tax actually technically owe taxes in Maryland. People don't usually know that and even rarer so do they ever pay it. Maryland has a "Sales and Use" tax ... in this case, it's the "Use" portion. You have to pay sales tax for items purchased out of state and USED in Maryland.

The tax on digital downloads essentially is a use tax. It'd go based on your billing address and be automatically charged upon purchase by the retailer ... like everything else you buy. Buy something from Apple online (like a computer) and you pay Maryland sales tax because that's where your billing address is. It's pretty simple.

Affiliate Nexus (referred to as an 'Amazon Tax') law is unconstitutional and is being challenged in NY and IL. In each State where it was attempted proved to be a loss of income tax revenue as well as a drop in Sales Tax revenue as companies dropped their programs.
Only Congress can address the issue, and it is doubtful they will pass any of the 3 proposed bills before them this session.

More in my blog

I love how MOM is attempting to raise taxes and fees on literally EVERYTHING in both tangible and not in this state, yet his "centerpiece" legislation this year is legalizing same sex marriage. He really does play us for a state full of tools and we dutifully fulfill the role.

I love how MOM is attempting to raise taxes and fees on literally EVERYTHING both tangible and not in this state, yet his "centerpiece" legislation this year is legalizing same sex marriage. He really does play us for a state full of tools and we dutifully fulfill the role.


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About Gus G. Sentementes
Gus G. Sentementes (@gussent on Twitter) has been writing for The Baltimore Sun since 2000. He's covered real estate, business, prisons, and suburban and Baltimore City crime and cops. He was one of the first reporters at The Sun to use multimedia tools and Web applications -- a video camera, an iPhone -- to cover breaking news. He hopes to cover Maryland geeks and the gadgets and Web sites they build, and learn -- and share -- something new every day.

Gus has a wife, a young daughter and two feuding cats. They live in Northeast Baltimore.
This is an archived version of the technology blog. For updated coverage, see the current baltTech location:

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