N.C. may apply sales tax to music, books, software and that distinctive phone ring.
By Mark Johnson
Posted: Wednesday, Jan. 28, 2009
N.C. legislature: Big goals, little money
Downloading that Miley Cyrus hit from Wal-Mart for 94 cents might soon cost about another 7 cents. A Beyonce ringtone purchased from a cell phone company may get tagged a few extra cents, too.
The money wouldn’t go to the musicians or their record companies. It would go to the state of North Carolina.
N.C. legislators moved closer Tuesday to applying the state sales tax – 6.75 cents in most counties and 7.25 in Mecklenburg – to products that are delivered digitally, such as music, books, ringtones and software downloaded to a computer.
The tax would apply only to products that already are taxed when they are in a more tangible form. In other words, if customers pay tax on a Lil Wayne CD from the music store at the mall, then they’ll pay tax when they buy his songs from an online music vendor.
“It’s reacting to electronic realities,” said Rep. Paul Luebke, a Durham Democrat who is co-chairman of a legislative committee that overwhelmingly recommended a bill Tuesday to impose the ringtone tax.
Vendors will collect the tax only if they have a physical presence in the state, such as a retail outlet like Wal-Mart or Best Buy. Apple stores may qualify as a toehold in the state for the company’s online iTunes store, and other vendors may have computer server farms or other network installations.
Otherwise, it’s up to the consumer to pay voluntarily.
As many as 17 states, including Alabama and Tennessee, have asserted the authority to tax digital products.
Digital service companies oppose the tax. Steve Kranz, a Washington lawyer who represents digital vendors around the country, said such taxes may drive companies out of the state. Because they don’t need a retail store or warehouse, it’s easier for them to move.
“It sends a message to the digital vendor community,” Kranz said, “that North Carolina is on the ‘do not call list’ for locating their companies.”
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