May 7, 2013 at 10:17 am

Poll: Who Should Pay Tax on Digital Music and Apps?

internet sales tax

On Monday, the U.S. Senate approved new taxes on digital and physical goods sold on the internet, including apps and digital music. This probably comes too late to save your local record dealer, but it probably wouldn’t have saved him or her anyway. Still, when more of the economy is online these days, a tax of some kind makes sense. Why should Other Music pay a tax on vinyl, when massive public companies like Amazon do not?

An internet sales tax of some kind makes sense from that perspective, although predictably it is facing hostility from many in the tech sector. In addition, the bill still has to pass the House, where it has enemies, and many wrinkles remain to be worked out on a state-by-state basis (for more on that, see Declan McCullough’s fine reporting on the topic).

One clear objection is that states without many digital businesses — including those in the south and midwest that reportedly receive a disproportionate amount of tax benefits already — will be strongly tempted to tax goods coming from technology strongholds including California, New York, Massachusetts, and Washington, which typically already pay more federal taxes than they receive — something that is already a hotly debated topic politically.

In other words, it’s complicated. People are going to fight about it. But it seems inevitable that these new taxes will eventually pass in one form or another as the internet hosts more of our economic activity.

The question at that point: Who should pay these taxes?

Here’s a particularly confusing example, by way of demonstration. If a developer builds an app for a record label, publisher, songwriter, and artist that includes their music, and the app runs on Spotify and is sold in Apple iTunes, who pays the tax?

Options would include Apple, Spotify, the label, the publisher, the songwriter, the recording artist(s), the app developer, the consumer, or a mix of those — and if it is a mix, what is the ratio? Let’s take an informal poll to see where people stand:

Photo courtesy of Flickr/marsmet351