At issue is whether consumers need to pay tax on digital downloads such as movies or songs purchased from Apple Computer's iTunes store. Already in a few states, those who don't voluntarily pay a few extra cents of tax on their 99-cent downloads are technically breaking the law.
Wisconsin Gov. Jim Doyle now wants his state to start collecting taxes on digital music, videos and software. Key Republicans in the GOP-dominated legislature say they will block the proposal, but administration officials say they're just trying to make things fair.
"It's an issue of tax equity," said Jessica Iverson, a spokeswoman for the Wisconsin Department of Revenue. "If you go into a Main Street business and purchase a CD, you are paying tax."
That issue of "leveling the playing field" between Internet and offline businesses has dogged e-commerce from its inception, creating a complicated maze of rules that is now extending to the world of digital downloads.
Economists are split, even across right-left divides, as to whether adding these kinds of taxes are a good idea. Some say that taxes on digital goods will hamper the growth of a potentially vibrant new marketplace, while others say that having taxes only on offline versions of the same goods distorts the operation of free markets.
Many states already impose what is often called a "use tax," which is essentially a sales tax applied to goods purchased from out of state such as through a catalog, a 1-800 number, or online.
For the most part, states can't force the vendors to collect that tax unless they have a physical presence in the state, however. That means that consumers themselves are often technically required to tally up how much they've spent during the year and pay the tax voluntarily.
Predictably, the compliance rate for this is extremely low, although some states have pursued high-profile efforts to collect the tax by contacting online vendors--most notably when Michigan subpoenaed online cigarette sellers for the names of state residents earlier this year. Wisconsin officials estimate that just about 1 percent of people actually pay this kind of "voluntary" tax at the end of the year in that state.
In the case of digital downloads, the issue has been almost wholly invisible.
In at least a few states, however, consumers who don't pay taxes on these songs, or on other digital download services, are in the category of tax scofflaws.
A spokesperson for South Dakota's Department of Revenue said that state's sales tax laws already apply to digital downloads. In Utah, too, iTunes shoppers who aren't paying tax aren't following the rules.
"It works like anything else that's from mail order or a magazine," said Scott Smith, deputy director of the auditing division of Utah's State Tax Commission.
Other states such as California say digital downloads are simply not taxed.
The issue may change over time as a group of states called the Streamlined Sales Tax Project extend their work to digital goods. Wisconsin policy-makers say their proposal comes out of discussions in that 20-state group, although it has not yet adopted a final policy on digital downloads.
Wisconsin state Rep. Scott Jensen, a key member of the state Assembly's Finance Committee, said he'll work to kill the proposed tax on downloads, however.
"Even if it does pass, it's unlikely that there would be much compliance," Jensen said. "But I think it is unlikely that the governor's proposal for the iPod tax will make it though the Legislature."
Are you thinking about buying an apple iPod ?
I bought a 20 gigabyte apple iPod in November 2003. That’s 16 months ago. It cost $699 (Australian). A bit pricy but it was the best MP3 player on the market, by far.
Just recently, the hard drive stopped working, a problem not uncommon judging from the response I received from the apple Centre at Hamilton where I bought it. However, they could not help me, they simply referred me to the apple Australian web support site. They told me that if I filled out the on line form, I could send my iPod to apple and they would send me a new one. Sounds too good to be true ….
After completing all details on the form to verify that I was indeed a legitimate customer, the message eventually comes up with…
“OK you have been verified. Just send in your iPod and we will send you a replacement iPod of similar type and condition (new, as-new, or refurbished as apple determines). Click here and you agree to pay $367 plus $20 postage COD.”
What ! This thing cost me $699 only 16 months ago and they want me to pay $387 (plus my costs to post it to them) to get it back in the same (albeit working) condition.
I declined. And I pointed out to them that I could buy a NEW later model iPod (from their own, same, web site), , for $439 (Australian)….with…
FREE shipping
FREE laser engraving
ALL the normaql accessories (charger/USB cables/case/software/etc..)
With 12 months Warranty
I pointed out that the preloved model they offer for nearly $400 carries only 3 months warranty, no accessories and is USED (scratches on back-plate etc.)
I asked them if they were serious.
I asked them where was their loyalty to their previous customers.
I pointed out my disappointment at feeling that I had failed to receive $699 of value from my previous iPod, purchased only 16 months previously.
I suggested that they consider introducing an upgrade/loyalty program, like 50% discount off the NEW iPod price for previous iPod owners who return their iPod (working or not)
Their reply:
“Dear Allan,…while we understand your disappointment regarding this, Apple is not able to reduce the cost of the replacement iPod for you.
Regards,
Linda Kewin
Apple Customer Relations
PS: Apart from hard drive problems, there are numerous other disappointed iPod owners whose rechargeable batteries have stopped accepting charge. Because the rechargeable battery is “built in” it will eventually loose its ability to accept charge and will require the same “replacement” policy. Previous bad press about this and how quickly it can occur was met with the apple response of:
“…well those people are obviously using it too much” !