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“iTunes tax” is a hot topic today

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Illinois

* The so-called “iTunes tax” made the front page of today’s Sun-Times…

Even a trip to iTunes for a new song or movie may soon be within the grasp of Illinois’ tax collectors.

Imposing the state’s 6.25-percent sales tax on downloaded songs and movies surfaced as a new money-making idea Tuesday from Gov. Quinn’s administration to help bail out the state from its $13 billion deficit. […]

Now, digital downloads are not taxed by state government, depriving Springfield of up to $10 million in revenues annually. But that figure could grow over time as more people download entertainment from Internet sites such as iTunes and Amazon. […]

Under Quinn’s proposed download levy, $9.99 albums would carry a 62-cent tax while $14.99 movies would have 94 cents in sales taxes tacked on.

But doing so in Illinois won’t happen without a fight from Republicans, who criticized the plan.

“It will be an interesting education for younger voters about the reach of the state’s treasury into their pockets,” said Sen. Matt Murphy (R-Palatine). “I don’t suspect it’ll be well received at all.”

Since 2007, 19 states have imposed similar download taxes, including Indiana, Wisconsin, New Jersey, Nebraska, South Dakota, Tennessee, Utah, Kentucky, Mississippi and Washington, according to the National Conference of State Legislatures.

More info…

A spokesman for NetChoice, an advocacy group whose clients include Yahoo! and eBay, said digital songs and movies shouldn’t be considered equivalent to a physical CD or DVD.

“The sales tax shouldn’t necessarily apply in the same way, or even at all,” NetChoice spokesman Braden Cox said.

Vaught argues that they’re selling goods to Illinoisans, and should have to pay tax on those sales.

“They shouldn’t get a pass,” Vaught said.

It’s not at all clear yet whether this will actually be part of the final package, but I am curious what you think.

* There are other proposals on the table, although many listed by the Tribune today are actually now off the table…

Still far from being approved, the additional taxes being discussed range from raising the $50 million a year tax on canned computer software, a proposal ex-Gov. Rod Blagojevich tried to pass but failed, to a sales tax on downloaded music and videos, according to Republicans who distributed the list of potential tax revenues.

Other proposals on the list would tax plastic grocery bags a nickel a piece and little cigars at the higher rate of cigarettes. A nickel-a-bottle deposit fee is another idea on the table. But Quinn’s budget director, David Vaught, said late Tuesday that the grocery bag and bottle deposit fees were part of a draft list, but did not make the final cut and are not being considered.

The governor’s proposal also proposed the option of eliminating a business tax credit for research and development. […]

Quinn also proposed selling off a portion of the revenue from a years-old tobacco lawsuit settlement, which his office estimates will generate approximately $2 billion to help pay down the estimated $6 billion backlog. The governor is also asking lawmakers to extend the time the state has to pay overdue bills in the hopes they will approve an income tax increase to help plug budget holes.

* The fine print from Finke…

Quinn’s latest plan includes dipping into emergency reserves and the tobacco settlement fund, additional borrowing and assumes passage of both a cigarette tax increase and the 33 percent income tax surcharge Quinn’s proposed for education.

The plan also contains and an extra $400 million in budget cuts and gives the state an extra four months to pay off last year’s bills, according to Quinn’s budget office. Overall, the plan leaves the state about $2.9 billion in the red at the end of next year. Quinn’s original plan assumed more than $6 billion in bills would be unpaid.

However, Senate Minority Leader Christine Radogno, R-Lemont, said it appears Quinn is shifting money around and is actually making only $900 million in budget cuts, if that.

“There’s been a lot of talk about potential cuts,” Radogno said. “For whatever reason, the cuts they initially talked about have not come to fruition. I have asked for the list of specifically what has been cut. They promised to get me that.”

* And this is a handy spin…

Thousands of state vendors could face the prospect of having to go to court to collect money they are owed by the state.

In a memo to legislative leaders Tuesday, Gov. Pat Quinn acknowledged the possibility that the state’s budget mess could force angry vendors to file lawsuits with the Illinois Court of Claims this fall.

The Chicago Democrat told the leaders that he wants a change in law in order to avoid the looming legal showdown.

“I think there’s an understanding that we have to do something,” Quinn budget chief David Vaught told reporters in the Capitol.

Let’s extend the lapse period by four months because it’s for the vendors’ own good! Great.

posted by Rich Miller
Wednesday, Apr 21, 10 @ 9:15 am

Comments

We’re moving into the land of the ridiculous now. I’m actually all for this as it will impact people who don’t ordinarily pay taxes or at the very least, aren’t exposed to the burden of them. If these people start to see the impact of taxes and just how expansive government is becoming then maybe they will start to pay attention and join the chorus of angry taxpayers.

Comment by Logical Thinker Wednesday, Apr 21, 10 @ 9:18 am
Radogno is absolutely right. We need to see this list. Why is this such a problem, I wonder. Quinn has been talking about his cuts ad nauseam for over a year now. Nobody has bothered to make a list of them? Or we who are being hit up for more taxes are supposed to each make our own individual lists from blogs and the evening news.
I guess the theory is an uninformed electorate is a pluckable electorate.

Comment by cassandra Wednesday, Apr 21, 10 @ 9:25 am
*Radogno is absolutely right. We need to see this list.*

I agree on there has been no list on the additional $400 m announced yesterday, but the rest were outlined in his FY11 budget. How much more detail do you want?

Comment by Montrose Wednesday, Apr 21, 10 @ 9:28 am
But have they actually been implemented.

As to detail–as much as I can get.

Comment by cassandra Wednesday, Apr 21, 10 @ 9:30 am
While I have no problem taxing downloads or Internet sales I do believe it should be at a lower rate than the normal state sales tax. It will be interseting to see how people react to all the impending new taxs, fees and increases of current taxes. I have been told the upcoming property tax increase on the next tax bill will be big. No wonder the tax bills are being delayed and won’t be delivered until after the election.

Comment by Fed up Wednesday, Apr 21, 10 @ 9:33 am
Taxing digital distribution is insane. The costs of delivery are already taxed. That’s what the telecom excise fees on your phone bills represent.

Keep cutting. Just this morning I witnessed CTA workers giving free fares to women they found attractive.

Awesome. We have an underground lust tax.

Comment by Brennan Wednesday, Apr 21, 10 @ 9:40 am
If I were a democrat I’d find every luxury item in the state: furs, 1st class tickets, limosuines and car service, car purchases over 50,000 dollars and tax them and make a republican vote against it knowing the mailer writes itself xyz politician voted against taxing fancy cars and as a result your kid’s teacher was fired.

Itune users would seem to be a democrat group that you are taxing so if you are that stupid, go for it.

Comment by shore Wednesday, Apr 21, 10 @ 9:41 am
- But have they actually been implemented. -

Do you think before you say things? Has the budget been approved? This is exactly the type of bashing Quinn without thinking that you’ve been doing all along.

Comment by Small Town Liberal Wednesday, Apr 21, 10 @ 9:47 am
Quinn should emulate Daley and ask vendors to give the state a 12% discount,(aka $12 billion in debt) as another blogger posted yesterday…I wonder what the average mark up is on state purchased items…the vendors could still make a profit, and the State could reduce it’s deficit…

Comment by Loop Lady Wednesday, Apr 21, 10 @ 9:57 am
Taxing internet purchases, especially digital ones, at the same rate as a physical store is ridiculous. The 6.25% sales tax pays for the roads you use to get to the store, among other things. The state does not bear 7 cents in cost for my 5 MB William Hung song to travel to my house over fiber optic cable.

Comment by Sent from my iPhone Wednesday, Apr 21, 10 @ 10:02 am
Another problem with taxing digital distribution is that you don’t actually own the ‘product’. You own a license to use the product. We go down this path and pretty soon the MPAA and RIAA will be wanting the state to police illegal copying and downloading of media, using the pretext of ‘lost revenue’ to justify it.

And what about things like Netflix Watch Instantly, or Blockbuster’s online movie-watching service. Will they be adding taxes to those services?

If we really want to make some digital dent - let’s forgo all of the Microsoft and Novell contracts and use Google Apps except for the tasks that absolutely require some functionality only found in another product.

Comment by Name Withheld Wednesday, Apr 21, 10 @ 10:03 am
We need to tax services in an increasingly service based economy, plain and simple…what is the tax on purchasing a CD? Tax on one downloaded song should be a fraction of that equivalent…you buy a service, you pay for it whether it is a haircut, medical visit, or downloading a tune…times change, methods of taxation must adapt to capture the state’s fair share of economic activity…

Comment by Loop Lady Wednesday, Apr 21, 10 @ 10:08 am
Rather than tax downloaded items like music and software, the state needs to turn its’ attention to collecting taxes on tangible goods purchased online, regardless of where purchased. This after all, is part of the cause for a lack in state revenue. As more and more people don’t go to their local businesses to pick up what they need and pay sales taxes; and instead go to their computer, charge it, don’t pay sales tax, and have it delivered; the state is missing out on the sales tax they would have collected from the local businesses. Then the state doesn’t have the money to pay the local schools, the local municipalities, the local pharmacies, etc. SHOP LOCAL AND PAY YOUR SALES TAXES. What goes around, comes around.

Comment by Both Sides Now Wednesday, Apr 21, 10 @ 10:45 am
=times change, methods of taxation must adapt to capture the state’s fair share of economic activity=

Do you know how the Internet works?

It is one thing to argue about the necessity for a VAT or a higher sales tax, but it is quite different to argue applying such a tax to distribution models that are lean, clean, and green and already taxing telecom customers to support the distribution models.

That CD is stamped at a factory, put on a truck, sent across a road, unloaded by a worker, moved to an inventory, stocked on a shelf, so a customer who had to travel to the store can find the CD and buy it.

Would you like to learn more about the workings of the Internet?

Comment by Brennan Wednesday, Apr 21, 10 @ 10:46 am
Brennan: Snarkee dude! Food is taxed and it’s delivery is clean and green too…it’s harvested, shipped on rail, and distributed locally on state funded roads, the customer drives/walks to the store to purchase…goods purchased from out of state on the net aren’t taxed and plenty of energy and human labor goes into the production of that product and the state receives no benefit from the purchase…now, go away and listen to your maybe soon to be taxed tunes on your ipod…

Comment by Loop Lady Wednesday, Apr 21, 10 @ 10:56 am
Using that “logic” how about extending the “lapsed” payment to 8 more months and double down on “reducing” the deficit! : -)

Boy do we need to sweep out the current bunch running Springfield or what?

Comment by Louis G. Atsaves Wednesday, Apr 21, 10 @ 11:00 am
The state is FREAKING BROKE Republicans. Put a tax on downloaded music/videos already.

Dipping into the Tobacco Settlement Fund? You mean the one that Quinn wanted to sell a little while ago? Geez.

What ever happened to that Rainy Day Fund set up a while back? Is that just zeroed out or what?

Comment by Hisgirlfriday Wednesday, Apr 21, 10 @ 11:01 am
Confirmed.

Loop Lady: You can cut a check to the Illinois Department of Revenue for any amount you wish to cover your fair share of sales tax that isn’t presently collected on digitally distributed licensed copyright products.

You don’t have to wait for a tax increase. You can pay as much as you want right now. I encourage you to spread this wealth of information to as many residents of Illinois as possible.

PS: The IRS also accepts voluntary contributions.

Crack that whip tax master.

Comment by Brennan Wednesday, Apr 21, 10 @ 11:11 am
The issue is larger than the minutiae you are so very focused on…we don’t agree, let’s leave it at that…as I am sure you know, any time a song is played on the radio or TV a royalty fee is paid to the artist…I fail to see the big deal here…if I buy a bottle of water for a buck, I pay state tax on it…unwad yer panties man…

Comment by Loop Lady Wednesday, Apr 21, 10 @ 11:22 am
On a semi-sorta related note:

Amazon.com filed a lawsuit on Monday to fend off a sweeping demand from North Carolina’s tax collectors: detailed records including names and addresses of customers and information about exactly what they purchased. http://bit.ly/aGV1OQ

Comment by MrJM Wednesday, Apr 21, 10 @ 11:28 am
=The issue is larger than the minutiae you are so very focused on=

I guess we’re playing fools dodgeball now. Dodge, duck, dip, dive and dodge!

The issue is not complex. It’s rather simple. You are trying to compare apples to oranges and asking everyone else to pretend they are the same.

Comment by Brennan Wednesday, Apr 21, 10 @ 11:34 am
It sort of makes a lot of sense. If you have to pay sales tax on a CD or DVD, why not on downloads of the same content?

As far as taxes go - it seems fair, honest and equitable. I’m okay with the “iTunes tax”

Comment by siriusly Wednesday, Apr 21, 10 @ 11:36 am
Wonder if the tax will include iPhone/Android apps? What about over-the-air Kindle book downloads? What about if you download paid content inside the app itself, which might be free? What about subscriptions to streaming services? What about paid apps for periodicals and newspapers?

Also, would this tax actually increase peer-to-peer piracy?

Comment by IL Yeezy Wednesday, Apr 21, 10 @ 11:40 am
The only thing missing from this scam is the boilerplate “the proceeds will go to fund education”

Comment by Leroy Wednesday, Apr 21, 10 @ 12:02 pm
==It’s not at all clear yet whether this will actually be part of the final package, but I am curious what you think.==

I see no reason why purchased digital content should be treated any different than any other product purchased and taxed.

==Taxing digital distribution is insane. The costs of delivery are already taxed. That’s what the telecom excise fees on your phone bills represent.==

Wrong. That covers the infrastructure, not the content.

==Another problem with taxing digital distribution is that you don’t actually own the ‘product’. You own a license to use the product.==

It’s the same when you buy a CD or DVD. You never own the content–you may own the plastic media but you only ever buy a license to use the content for limited purposes (in home, private use normally.) The delivery mechanism does not change the fact that you’re buying a license.

==We go down this path and pretty soon the MPAA and RIAA will be wanting the state to police illegal copying and downloading of media, using the pretext of ‘lost revenue’ to justify it.==

They’re already doing that without the justification you mention:
http://www.crunchgear.com/2010/04/16/riaa-mpaa-would-like-to-scan-your-hard-drive-for-infringing-content/

It doesn’t help that companies like Google / YouTube are so willing to use “fingerprinting” technologies to automatically shut down any videos that contain unauthorized copyrighted material, despite the fact that the posters are well within their legal fair use rights.

Every legislator needs to read this book:
http://www.thepublicdomain.org/

Comment by Squideshi Wednesday, Apr 21, 10 @ 12:10 pm
So, why do vendors have to go to court to get paid their delinquent invoices? They’re owed the money, and the State is obligated to pay them anyway. The State hasn’t paid them because the State is broke, ergo, even if the vendors get a summary judgment by the court, what magic causes the vendors actually to get paid what the State is already obligated to pay them? Or is there some statute that discharges the State’s obligation to pay a vendor if the State hasn’t paid by a certain date?

Comment by Safe Aggie Wednesday, Apr 21, 10 @ 12:11 pm
I think we should tax ALL purchases except unprepared food and medicine - everything beyond that is a personal choice and thus subject to the taxman

Comment by Anonymous Wednesday, Apr 21, 10 @ 12:17 pm
Loop Lady - I’m on your side most of the time, but this issue isn’t as cut and dried as you’re making it out to be and you’re not making a very good case for Quinn’s team. I’m a big supporter of Governor Quinn, and I think this is an interesting idea that should be studied. But when we start yelling go to every idea that helps the budget without thinking, we lose any credibility we once had. Take a breath and let Mr. Vaught make his case, he’s pretty good at it.

Comment by Small Town Liberal Wednesday, Apr 21, 10 @ 12:46 pm
SML: This is being already done in other states-it’s not Quinn’s original idea, nor do I endorse any pol’s idea without giving it ample thought…the legislature was considering taxing haircuts and dry cleaning a few years ago, but holy hell broke out and the idea died a quick death…our financial coffers are now in way worse shape and the service based economy roars on without a fair tax policy for users/buyers of that service…retail aint what it used to be and I personally buy many household items on the web…policy always lags behind the technology…

Comment by Loop Lady Wednesday, Apr 21, 10 @ 1:02 pm
This is double taxation. I already pay taxes on my internet connection. How does me downloading a song cost the state?

Let’s start taxing blog postings! What’s the difference?

Comment by Nice Wednesday, Apr 21, 10 @ 1:11 pm
Honestly - this is another thing that makes me want to leave Illinois. Tax and tax and tax. Good gracious. Get a grip on your fiscal management. I’m a Democrat and can’t believe was muck this state has become. It is embarrassing. I’m voting Green.

Comment by Dream Weaver Wednesday, Apr 21, 10 @ 1:11 pm
Loop Lady - Please don’t take offense, but how about that breath? Other states aren’t always right. Haircuts, dry cleaning, and online purchased household items aren’t the same as electronic media files, and policy should lag behind technology so it can be correctly applied. Again, I’m not saying this is a bad idea, but you aren’t making a good case for it.

Comment by Small Town Liberal Wednesday, Apr 21, 10 @ 1:12 pm
==This is double taxation. I already pay taxes on my internet connection.==

It is not double taxation. One is a tax on the infrastructure, the other is a tax on the content. They are separate products; and if you don’t agree, why are you paying for them separately? Are you going to next start demanding the content for free since you are already paying for an Internet connection?

==How does me downloading a song cost the state?==

It doesn’t have to cost the state anything. Costing the state is not the only justification for taxation. Individuals earning income does not cost the state anything but that’s still taxed. This is about funding government, not about reimbursement for costs incurred. You’re confusing private business with government.

==Let’s start taxing blog postings! What’s the difference?==

The difference is that you’re not purchasing blog postings. You really don’t understand that?

Comment by Squideshi Wednesday, Apr 21, 10 @ 2:37 pm
Rich’s blog posts are taxed - I’m very sure Mr. Miller pays tax on income derived by his news-hawking~

Comment by news-hawk Wednesday, Apr 21, 10 @ 2:40 pm
If the state is hurting for money, perhaps it should stop its “$105 million program to condemn family farms and acquire land at the site of the proposed Peotone airport in the far southern reaches of the Chicago Metropolitan Area.“

Comment by Squideshi Wednesday, Apr 21, 10 @ 2:50 pm
Small Time Lib:
I’m talking about the ones he has been promising to make this fiscal year–or, in some cases, claims he has made. I don’t believe a word he says about next year, based on past flips and flops.Right now, fy 11 is just a Democratic fairytale.

As to the iTunes tax, 13 billion divided by 10 million is 1300 so the guv only needs to dream up
1299 more taxes like this one and we’re all home free. We need broad sources of revenue, not nano-sized ones. Extending taxes to all services, as many states have already done, would bring in many times the iTunes tax.

Any politician can psss taxes so small that they can’t possible cost the pol an election. Guess that what our Pat and his budgeteer Vaught are looking for.

Comment by cassandra Wednesday, Apr 21, 10 @ 3:23 pm
Hoookay cassandra, so you think Quinn is making claims that he’s made cuts to things that he’s really funding this year? Interesting, you better go tell Bill Brady because its pretty easy to look that up. And your complaint about this potential tax is that its too small? You’re on a roll, maybe you should start your own blog and exclusively comment there.

Comment by Small Town Liberal Wednesday, Apr 21, 10 @ 3:52 pm
So…when I download a tune from company headquartered in California, do I pay CA state tax? Or IL tax? Or should I question Mr. Cullerton, Mr. Madigan and the rest of them on their need for taxpayer funded vehicles? Just misplaced energy…misplaced indeed.

Comment by GetOverIt Wednesday, Apr 21, 10 @ 4:02 pm
smt-

No, I want to see what he actually has cut. Every time he opens his mouth on tv he mentions cuts in the current budget but I don’t believe even Quinn is claiming he cut as much as he said he was going to when he signed off on it. The usual excuses. Of course, we have a little over two months to go. Giving him the benefit of the doubt, maybe we’ll see some action yet.

An income tax increase is not the only broad tax available to policymakers. It seems to be the only one Illinois’ Democratic liberals can get behind though. The easy button of Democratic politics–hit up the middle class for a lot more $$$$$$$. Our state pols have steady income and plenty of time. A little creativity, please.

Comment by cassandra Wednesday, Apr 21, 10 @ 4:41 pm
Look, part of this is pretty simple and the numbers add up to what Radogno is saying. The Gov is saying $2.6B in cuts but he then restores 1.7B (in the revenue piece of the walkup, which is a little gimmicky but we’ve seen far worse before) if the ed surcharge is passed. So in the budget as the Gov himself would explain, IF the surcharge is passed, there are $900,000 in cuts, 2.6B if it doesn’t pass.

Comment by steve schnorf Wednesday, Apr 21, 10 @ 7:56 pm
There are plenty of places to download for free these days. Illinois imposing a tax will just run more off to the free sites. Seriously, does anyone in Illinois have a brain so that this might be figured out?

Comment by Yawwwnnn Wednesday, Apr 21, 10 @ 11:00 pm