When a consumer purchases a CD, DVD or software at a high street shop in the US, they must pay the tax based on their state. However when one purchases online content within the US for download, they currently do not pay any tax to the vendor. However, there is now an issue on whether consumers should pay tax for downloads as they would if they purchased physical products in a shop. In fact, in some states such as South Dakota, consumers who do not voluntarily pay tax on their purchased online downloads are technically breaking the law.
Wisconsin governor Jim Doyle now wants digital download taxes to be collected in his state, although the Republican Party's law makers wish to block the proposal. Some economists say taxing downloads is a good idea since consumers must already pay taxes on physical goods, while others claim it will affect the growth of online marketing.
A Streamlined Sales Tax Project is planned across the 20 states that would require taxes to be paid for digital download purchases in all the 20 states. However, even if this goes ahead and the states require taxes to be paid, online vendors cannot be forced to collect taxes unless they are physically present in the state the customer is purchasing from, which means consumers would still be required to calculate the taxes they owe on purchased downloads and pay it voluntarily, thus leaving a big loophole. At the moment, the only purchasers of digital downloads who end up being forced to pay their taxes are businesses that make large software purchases.
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At issue is whether consumers need to pay tax on digital downloads such as movies or songs purchased from Apple Computer's iTunes store. In a few states, those who don't voluntarily pay a few extra cents of tax on their 99-cent downloads are already 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." Read the full rather lengthy article here. |
Within Europe, online software sellers must charge for VAT (value added tax) even if they are not present in the EU country the customer is buying from. For example, if an Irish consumer purchases software an online download stop in the UK, they must pay either UK or Irish VAT (depending on the business). VAT registered businesses on the other hand are VAT exempt.
This also likely explains why iTunes charges 99c here in
Europe (excluding UK) even though it is roughly US$1.34 to the Euro, as iTunes
must include the VAT in their price here, which can vary anywhere from 15% to 25%
depending on the country the customer is located at.
Source: c|net News - Music
