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.
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