Vermont Starts Taxing Digital Downloads

Daniel Barlow reports that Vermont became one of a growing number of states to target digital downloads as a new source of tax revenue. Starting July 1, many purchases from iTunes and other on-line download retailers became subject to the state’s sales tax.

He adds that the new tax was proposed “as a way to boost the state’s coffers during an economic downturn, according to Rep. Jim Condon, D-Colchester, a member of the House Ways and Means Committee.”

Douglas signed the bill containing the new 6% tax into law. Officials hope it will between $700,000 to $1 million in new revenue each year.

Steve Kranz, a Washington, D.C. attorney who represents companies that sell digital downloads, believe these downloads should not be taxed as the delivery of the products to the stores do not use local highways and roads and other state services.

Kranz says. “From a policy standpoint, the taxpayers are not impacted when someone pays for a download.”

However, taxing is a complicated issue.

The U.S. Supreme Court forbids states from taxing sales unless the seller has a presence in that state. This means that Vermont can only collect taxes from companies set up in the state.

It can also tax retailers from outside of the state as long as they are members of the Streamlined Sales Tax Project.

Mr Barlow notes that, “More than 20 states are members of this project, which attempts to create a national, uniform approach to taxing sales over the Internet.”

So how does this work for digital downloads like MP3s?

Downloads from Apple calculate Vermont’s sales tax into on-line purchases, though Amazon, which is not a member of the sales tax group, does not.

“All the states really need to be on the same page,” Condon said. “Collecting tax revenue from on-line purchases will be a lot easier once there are not more than 1,000 different sales tax codes across the country.”

Full story here: http://www.timesargus.com/article/20090702/NEWS01/907020374/1002/NEWS01