New York proposes taxing iTunes, other downloads

Computerworld - The budget plan unveiled by New York Gov. David Patterson this week would slap a sales tax on all downloaded digital content, including iTunes tracks.

Dubbed the "iPod tax" by some, the "iTax" by others, the proposal is just one of 137 new or increased taxes that Patterson unveiled Wednesday in his 2009-2010 budget as he attempts to close a $15.4 billion shortfall for the state, the largest in its history.

According to the state's budget Web site, the tax would impose state and local sales tax on purchases of virtually any kind of digital content to close a loophole and "achieve tax parity." The tax would apply to any "electronically delivered entertainment services," including downloaded software, photographs, games, videos, movies and music.

"For example, with the passage of this bill, a book, song, album or movie would be subject to sales tax no matter if it was bought at a brick and mortar store or downloaded online," said the state.

The tax would generate an additional $15 million in tax revenues for the 2009-2010 budget period, the state projected, and $20 million for the 2010-2011 budget.

New York's state sales tax is currently at 4%, but many cities tack on additional local sales tax. New York City, for example, adds another 4-3/8% to end up at 8-3.8%. Each track downloaded from Apple Inc.'s iTunes, then, would generate 4 cents in revenue to New York state, and just over 4 additional cents to New York City. Someone living in Manhattan, for example, would pay $1.08 to download a song from iTunes.

Steve DelBianco, the executive director of NetChoice, a technology industry trade group that has lobbied against such taxes in the past, said it was the worst time to tax downloads. "Why impose taxes on this when we're trying to encourage a low carbon footprint?" he asked. "Downloads have no plastic and paper packaging, no emissions from trucking a CD to the store."

Calling the tax "stupid" at one point, DelBianco rejected the idea that New York would be closing a loophole. "It's not closing a loophole; it's a brand new tax on New Yorkers," he said.

If New York does add sales taxes to downloads, it would be the 21st state, including the District of Columbia, to do so, said DelBianco. Apple, for example, collects sales tax on iTunes downloads to residents of Alabama, Colorado, Hawaii, Louisiana, Maine, New Jersey, South Dakota, Tennessee, Texas, Washington and others.

A bill submitted by California state legislators that would have taxed downloads was defeated earlier this year; Apple is headquartered in the state.

Other new taxes that Patterson proposed include an additional 18% sales tax on non-diet soft drinks, a move that would bring in an estimated $404 million next year.