More states charging taxes for iTunes and eBooks

The highly popular category of iTunes and eBooks has just got more expensive. Millions of people use these applications to download music and books of their choices and the decision of nearly 25 states to levy a sales tax on these downloads, has not gone down well with the phenomenal number of loyal end users of these applications. A recent announcement informed that these states were going to charge sales tax for any kind of digital service like downloading music, e book, selecting ring tone, streaming television shows online etc.

As the digital industry is booming, millions of people have been hooked to the internet for buying their daily needs, books, movies, music, television shows etc. Some state governments felt that the digital industry was eating up a lot of their state revenue that they would have earned otherwise. This thought led to the idea of levying sales tax for the digital market as well, so that the governments would not face any loss in revenue. Minnesota is the latest state to come under the radar for these revised sales tax rules.

Sales through eBooks rose to around 41% as compared to last year, digital music increased to around 9% from last year and the total transactions made online rose to a whopping 37% as compared to last year. Hence some states have introduced sales tax on digital products with immediate effect. The nature of transactions that are taxed differs from state to state. For example, some states tax anything that is bought digitally irrespective of the mode of delivery. However, some states levy tax on music that is downloaded, but not on music that is brought from serviced websites like Netflix or Spotify.

The tax rates differ according to the states. For example, a $12.99 purchase made from the iTunes website, carries a tax of 4% in Wyoming, 6% in Vermont and 7% in Mississippi. EBooks is another major application that took the digital world by storm by attracting huge number of visitors every day. On a $9.99 purchase on eBooks store, the tax levied is 7% in New Jersey and 4.7% in Utah.

There are certain big cities like New York, which levy sales tax on download of mobile applications but do not levy any tax on the digital purchases from iTunes. New York levies a tax of 12 cents on a @2.99 purchase of Angry Birds application, however, music download and purchase from the iTunes is free of tax here. Streaming websites like Netflix are also used widely for downloading music. In most of the cities, these do not carry any tax. However, Washington levies a 6.5% tax for a $7.99 monthly subscription of Netflix streaming, while Florida imposes a slightly higher 6.75% tax for the same amount of subscription. A digital seller can impose sales tax only in those states, where the seller owns a store or a warehouse. A recent change in law, the seller can also impose taxes on those states, where he has a minimum of $1m sales a year

End of Sales Tax Free Online Sales

Online retailers has been going back and forth to fight the online sales tax collection.  Online retailers and California legislature reached a deal in 2011 that included a one-year grace period. That grace period is now ended.

What will online shoppers do now?  Pay sales tax for online purchases at many online stores including Amazon and eBay. 

What do retailers think about this change?  One of the biggest online retailer Amazon said that company will continue to offer better prices,  and is not worried about this change.   I am sure Amazon customers would disagree.

How about the State of California ? Its Christmas for the law makers.  State is planning to hire more people to ensure the proper collection of online sales tax.

Online retailers have tried their best to avoid this day but its hard to win against uncle sam.

 Why do State of California loves online Sales Tax?

State officials of California are estimating that they can generate over $200 million a year to fill the budget holes by collecting online sales tax.  Under current use tax rule, Californians are supposed to pay the equivalent of sales tax on their state income tax. However, California rarely collects this tax and ends up lossing about $1 billion every year.