iPod tax

If given the option to pay taxes, most of us would say “forget it.” I certainly don’t like the amount of tax taken out of my paycheck every other week. But if I had a choice between paying income tax or paying sales tax, I’d choose the latter because I’d have the option to, well, choose.

In Wisconsin’s 2005-07 Governor’s Recommended Biennial Budget, there is a provision to require the collection of sales taxes from Internet download purchases. However, Wisconsin Representative Scott Jensen thinks this is ridiculous, and calls it an “iPod tax.” He points to how Wisconsin Governor Jim Doyle is trying to promote Wisconsin as a “high-tech haven,” yet is wiling to tax e-commerce. He also indicates that Wisconsin residents currently pay taxes for Internet service, which violate federal law (so much for state autonomy, right?).

I don’t see a problem with taxing Internet-purchased products. For those of us that have Internet access, yeah, it’s an additional financial burden. But we’re talking 6 cents for a 99-cent download (based on Wisconsin’s 5 percent sales tax and Dane County’s 0.5 percent sales tax). For 10 songs, it would cost $10.45 instead of $9.90. And for an entire album, the cost is a whopping $12.65 instead of $11.99, at most (since most albums on iTunes usually cost $9.99, or $10.45, if Governor Doyle’s proposal moves forward).

However, those people that don’t have an Internet connection are stuck paying as little as $11.99 ($12.65 with state and county sales taxes) for a new release. Most new releases in the store cost anywhere from $13.99 to $17.99 ($14.76 to $18.98 with tax), depending on where you shop. So what’s fairer?

As a taxpayer, I don’t think it’s that much of a burden to pay a small amount of tax on something purchased online. In fact, I report and deduct my online purchases on my state tax return every year (truth be told, I reported purchases of $1,317.33 and paid $72.45 in sales tax last year). The concept that Rep. Jensen misses is to reduce the income tax for all of Wisconsin’s residents; if you work, you must pay. However, if you don’t want to pay sales tax, you don’t have to purchase the item. The same is true for downloadable content; if you don’t want to pay the tax, don’t download it. It’s choice versus mandate.

Finally, I don’t think it’s unfair for people to pay sales tax for downloadable content if they would pay it in a store. When I purchase something from the Internet, I do it because I can’t find the product locally or there is a special deal on it. And amazingly, I track down every single purchase so I can report it on my tax return (for 2005 so far, I’ve made two purchases that total $55.35, and I owe the State $3.04). It’s not difficult to track, and I certainly don’t think it’s too much to ask. As it turns out, it’s the law in Wisconsin: specifically, if you purchase and use something in Wisconsin, you must pay the sales tax on it (some things are exempt; music media is not one of them). That’s why companies that have brick-and-mortar stores in a state and also sell merchandise online collect sales tax. Land’s End does this, as does Barnes and Noble. Of course, the term “iPod tax” comes from someone who is still facing criminal charges for his misconduct in office, so what’s the law to him?

If Wisconsin (and other states) want to get out of their deficits, one creative option is to collect taxes that are due to the State. Governor Doyle offers a creative revenue generator. I don’t see any creative revenue options offered by Rep. Jensen, though. Then again, it’s probably because he’s trying to protect the interests of his wealthy constituents.

Jensen’s press release: “Doyle Downloads “I-POD” Tax on Internet Users” (opens a 5.6 KB pdf)

The Hometown Advantage article: Internet Sales Tax Fairness

Study: State and Local Sales Tax Revenue Losses from E-Commerce: Estimates as of July 2004 (223.8 KB pdf)

Center on Budget and Policy Priorities article: Should the Internet Remain a Sales Tax Haven?

Follow-up, 12 March 2005: Wisconsin Department of Revenue Use Tax