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STATE LAWMAKER MEETS CRITICISM IN EFFORT TO INCREASE REVENUE

By Edwin Garcia

Mercury News Sacramento Bureau

Article Launched: 04/07/2008 01:30:50 AM PDT

 

SACRAMENTO - Don't get too used to those 99-cent downloads from iTunes. A Los Angeles-area lawmaker trying to help raise money to delete the state government's $8 billion shortfall thinks consumers should pay sales tax when buying from online music stores.

 

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Founder of Audiophile Style

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I'm opposed to taxing music downloads. The one thing that really turns me off to this is the state of California collecting a tax when it may have nothing to do with the transaction. I'm guessing the tax would require California businesses to pay tax on their download sales, which would be passed directly on to consumers who are California residents. Charging the tax any other way would be virtually impossible. Can California charge the tax based on the purchaser's physical location? It could try, but locating the purchaser based on IP address would be problematic and lead to geeks easily evading the tax by using proxies. Thus, they'll have to go by the purchaser's credit card billing address. However, the proposed method also brings up scores of other issues.

 

My ugly scenario plays out this way. You live in California and travel to New York on vacation or business. While there you purchase and download music from a California based online store. Because you're a California resident you must pay taxes to the state of California for a transaction the state had absolutely nothing to do with.

 

Maybe you can tell I'm not a fan of taxes in general, but I really am not a fan of this proposed tax.

 

Maybe I'm missing something here. What do you guys think?

 

Founder of Audiophile Style

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This is a complex issue, and I think has some history going back to sales tax on sales made via catalog mail order. Using your example, Chris, I can't see where a company in California would be expected to collect and/or pay sales tax on all its online sales. With sales tax, there has commonly been the issue of "nexus" which basically says that if a sale is made to a customer who puts that item into use in a state where the company has a presence (sales office or retail outlet) then sales tax should be collected and paid in that state. So it is more based on where the customer is, not the company. (Technically, if you buy something and the seller doesn't charge you sales tax, you are supposed to calculate "use tax" and pay it to the state you live in. Individuals never do this, but large purchasers like companies do.) Anyway, the really thorny issue in the online world is, where does an online company have presence or nexus. In their home state only? Across the worldwide web?

 

I agree that most taxes are onerous, but still we gotta pay for the roads and schools and cops and firemen somehow. And sales tax receipts are down with the advent of the net, so the states will look for some source to fill that gap. It's going to take people that are smarter and more patient than me to figure out how.

 

TheOtherTim

 

 

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Hey Tim thanks for the knowledgeable reply!

 

I have read about this issue in the past and drew some conclusions from that experience. You may be 100% correct here.

 

I was logically (in my mind) playing out the details of how to charge tax for an internet purchase and typically it is done based on either billing or shipping address. Then I was assuming that, since the article suggested companies would move from California because of this tax, there would need to be some sort of combination of California company and resident to charge the tax. I may be way off though.

 

How does Apple know that you are making the purchase where it does not have a presence? Based on the "move out of California" comments in the article I will assume, right or wrong, that physical location means presence. Since it is a California law I am assuming this applies to all businesses with a physical location in California. This is where I get my California company in combination with California resident scenario.

 

At any rate this is a very interesting topic. Thanks again for the post and offering a very good interpretation of the situation!

 

Founder of Audiophile Style

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