Despite high piracy rates, digital content services are riding high. Some like Valve have made a lucrative business off distributing video game content such as the Half Life, Doom, and Grand Theft Auto games (the latter two licensed by id and Rockstar respectively). Others, such as iTunes and Rhapsody have cashed in on the music business as well as TV episode content.
And though the good times may be rolling for online business, those happy times may be nearing an end. Many states are after the $130B USD untaxed digital market and salivating at the prospective tax revenue. While internet taxes may have been shot down at the national level, some states aren’t as forgiving.
Just a few months ago Indiana, South Dakota, and Utah all signed digital download taxes into law. Nebraska enacted such a measure in April. June put a digital tax law in Tennessee's books. In all, nine states adopted taxes on digital downloads in 2008 alone.
Part of the online industry's rapid growth has been thanks to a favorable tax climate -- or lack thereof. Most downloads in the past have not been taxed at all, as most states' tax laws predate the widespread use of the internet. Thus some states like California have high taxes on physical purchases of music and games, but low taxes on their online counterparts.
The tech industry argues that this differentiation is vital to their business. NetChoice who is composed of eBay, AOL, and Yahoo and others is among the groups lobbying against the taxes. It has thus far had relatively little success.
Steve DelBianco, executive director of NetChoice explains his stance, "With global warming and a world that's running out of oil, the last thing governments should do is add taxes on something that uses no oil and produces no carbon. A digital download is the greenest way to buy music, movies, and software, since it requires no driving to the store, no delivery vans, and no plastics or packaging."
Stephen Kranz, an attorney at Sutherland law firm who helps the net retailers fight against tax measures, says there have been some victories. Lobbyists in California and Wisconsin held off tax measures -- for now.
Mr. Kranz is fearful, though, that for these small victories there will be many defeats in the days ahead. Wyoming and Washington are both reviewing their tax policies in upcoming months. He adds, "Massachusetts has a draft bill circulating around."
The numbers are growing -- 17 states, plus the District of Columbia, tax digital downloads now, or just over a third of the nation's states. Among these are Alabama, Arizona, Colorado, Hawaii, Idaho, Indiana, Kentucky, Louisiana, Maine, New Jersey, New Mexico, South Dakota, Texas, Utah, and Washington. Some states like Washington are considering upping taxes as well.
The Tennessee law governs "the retail sale, lease, licensing, or use of specified digital products transferred to or accessed by subscribers or consumers" while the Nebraska law covers "sales of digital audio works (music), digital audiovisual works (movies, music videos, TV shows), and digital books".
The music industry now gets 30 percent of its revenues from the 500 legitimate download services in operation. The International Digital Publishing Forum says online audiobook sales are up to $10B USD in Q1 2008, up 25 percent from last year.
One small ray of sunshine for E-Tailers is the legal concept of "nexus", which the Supreme Court ruled in 1992 was mandatory for taxation. "Nexus" means that a company must have a physical presence within a state to be taxed. So Amazon, which is Seattle based and has no offices in California, could not be taxed in the state. Some members of Congress are trying to push through bills to block this concept, making taxation mandatory. Mr. Kranz is at least relieved that these efforts seem unlikely to succeed. He states, "Most of the proponents of the nexus legislation would concede that given this is an election year, it's unlikely the legislation will pass."
Many states are joining together on the Streamlined Sales Tax Project, which aims to develop a consistent framework for online taxation. One key point is “what is digital content” and “what is software”. Some states want digital software taxes, which could hit Valve and other online game distributors. Others say this is a bad idea.
Dan Noble, the administrator of the excise tax division for the Wyoming Department of Revenue, says that states could tax anyways, that the laws are just a formality, in effect. He states, "The way our statute is currently we probably could tax them, but we should probably have the legislature have the final say."
Some states like New York, whose statute states "The sale of digital music delivered electronically to customers for download on their computers... constitutes the sale of intangible property and is not subject to sales or use tax...", may find the allure of the rich tax revenues too much to resist in the long run.
Temporarily, some companies like eBay or Amazon may be able to hide behind the concept of nexus, but others like Apple, which has a store in virtually every state, have nowhere to turn. As the online digital content industry continues to grow the issue is likely to grow as well. With illegal downloads gnawing at its sales on one end and increasing taxes on legal downloads on the other end, it should be interesting to see if the industry is able to continue to thrive and grow.
quote: One man's cult is another man's religion. Who gets to decide which is "right" or "wrong"?
quote: A huge problem in this country today is that the churches are far too involved in politics.
quote: What you're advocating is effectively that free speech should not exist for religious institutions. If you say it's okay to punish a religious leader for making political speeches at the pulpit, you would also need to punish normal individuals for doing the same thing on the side of the street, and I certainly hope you are not advocating *that*.
quote: When you do that, you start limiting free speech if you punish people for advocating certain political viewpoints in specific situations.
quote: Be it enacted by the General Assembly, That no man shall be compelled to frequent or support any religious worship, place, or ministry whatsoever, nor shall be enforced, restrained, molested, or burthened (burdened) in his body or goods, nor shall otherwise suffer on account of his religious opinions or belief; but that all men shall be free to profess, and by argument to maintain, their opinion in matters of religion, and that the same shall in no wise diminish enlarge, or affect their civil capacities .
quote: that our civil rights have no dependence on our religious opinions, any more than our opinions in physics or geometry; that therefore the proscribing any citizen as unworthy the public confidence by laying upon him an incapacity of being called to offices of trust and emolument, unless he profess or renounce this or that religious opinion, is depriving him injuriously of those privileges and advantages to which in common with his fellow-citizens he has a natural right
quote: You are correct. The forefathers had no problem with religious influence in government.
quote: The reason our forefathers created the concept of "Separation of Church and State" was to avoid another Church of England.
quote: Our forefathers had absolutely no problem with religion (of any kind) having any influence in government (hence the one-way street).
quote: So if a fair tax (consumption tax) were employed, then this whole debate would be moot and electronic downloads would be consumed by the consumer and then eligible for a tax.
quote: But that's a minor anecdote that indicates a clear moral problem with the way the Catholic Church works -- not a complete an utter damnation of Catholic practices and ideals.
quote: I can't even imagine learning "Catholic practices and ideals" from such an organization, sorry. They have no basis for any moral authority in my book.
quote: So, im curious how does that way of thinking perpetuate this whole "widespread sexual abuse of childen"
quote: The point being, the USA is founded upon reformer/protestant ideals, which only exists because the Catholic Church provided the foundation
quote: Which means in essence, this whole idea of "Seperation of Church and State" is a governments desperate bid to distance themself from moral responsbility and their roots so they can act more "freely" to their whims.
quote: By that logic, the Church is approving every single sin and transgression (legal or no) by not condemning and sharing what is said in confessions.
quote: Which also means that everyone in the United States who turns their back on the abortion issue is also accessories to genocide, just like the German citizens in the 1940s, no?
quote: Well, removing references to God in public schools is a good start. Lets see how many other laws they can change before the century is over, then discuss this further :-)
quote: Regardless of religion, absolute power corrupts absolutely.
quote: This is merely an extension of your logic. And just like I wouldn't fault every Catholic, I wouldn't fault all homosexuals of this crime either.
quote: The mistake you make is you are confusing deviant behavior of a Catholic priest / individual which is not promoted / condoned by the religion to that of what the other poster describes as Scientology's ulterior motive.
quote: Religion I think should be tax exempt. Need to remove Scientology as a listed religion though. It's not. In every other country in the world, its listed as a cult.
quote: Christianity isn't based around charging people for services. Nor is any other major world religion. Scientology is. It's a business. Not a religion.
quote: Government is just getting greedy
quote: Government is just getting greedy
quote: Yea, that's exactly what I want. Half the population trying to see where the airodynamic limits of their cars are while the other half drive like there are no other cars on the road.
quote: Germany they spend their uberhigh taxes on the highways, hence Germany is the only country in the world that has NO SPEED LIMIT on its highways.
quote: I like your logic
quote: I never quite made the link between spending on an highway and the speed limit
quote: You guys already have the lowest prices in the world and now you're whining about not being able to dodge taxes - WHICH YOU SHOULD PAY - by buying online? Unbelievable.
quote: So eBay, which is Seattle based and has no offices in California, could not be taxed in the state.
quote: Dan Noble, the administrator of the excise tax division for the Wyoming Department of Revenue, says that states could tax anyways, that the laws are just a formality, in effect.
quote: "Mr. Kranz is fearful, though, that for these small victories there will be many defeats in the days ahead. Wyoming and Washington are both reviewing their tax policies in upcoming months. He adds, "Massachusetts has a draft bill circulating around. The numbers are growing -- 17 states, plus the District of Columbia, tax digital downloads now, or just over a third of the nation's states. Among these are Alabama, Arizona, Colorado, Hawaii, Idaho, Indiana, Kentucky, Louisiana, Maine, New Jersey, New Mexico, South Dakota, Texas, Utah, and Washington. Some states like Washington are considering upping taxes as well. The Tennessee law governs "the retail sale, lease, licensing, or use of specified digital products transferred to or accessed by subscribers or consumers" while the Nebraska law covers "sales of digital audio works (music), digital audiovisual works (movies, music videos, TV shows), and digital books". Temporarily, some companies like eBay or Amazon may be able to hide behind the concept of nexus, but others like Apple, which has a store in virtually every state, have nowhere to turn. As the online digital content industry continues to grow the issue is likely to grow as well."