California eyes tax on iTunes downloads

If a California lawmaker has his way, the state may end up joining more than a dozen states that tax digital media downloads, including those from iTunes.

The Orange County Register (by way of the Unofficial Apple Weblog) reports that Assembly Bill 1956 wouldn't establish a specific tax for digital downloads; rather, it would expand California's definition of taxable, "tangible personal property" to include media downloads—a move that would sidestep the two-thirds vote that's required to levy a new tax.

Collecting taxes from digital downloads would also depend, in part, on the "use tax"—a law that requires consumers to report and pay any taxes owed for out-of-state goods, such as that sales tax-free TV you bought on Amazon. (Since Apple is based in California, Jobs and company would presumably be required to collect sales tax at the time of purchase.) 

Of course, hardly anyone actually reports those Amazon purchases to the IRS, although some states are starting to step up enforcement.

Anyway, California wouldn't be the first state to collect sales tax from digital downloads—more than a dozen states already do so, as I'm sure many of you are painfully aware. Dory posted about New Jersey's recent decision to start taxing media downloads, including iTunes.

It's no surprise that California, which is facing a $7.5 billion deficit, is considering an iTunes tax. From the state's point of view, iTunes—and digital downloads in general—represent a massive, untapped source of revenue.

But the bill, introduced by Democratic Assemblyman Charles Calderon, faces a significant hurdle: Republicans, who (according to Yahoo! News) want to bridge California's budget gap with spending cuts rather than new taxes.

So, what do you think? Willing to fork over sales tax for digital downloads (which, after all, aren't that much different than taxed music CDs) to keep state governments afloat? Or should lawmakers find other ways to balance their budgets?

Related:
CA lawmakers want to tax iTunes downloads [TUAW]
State lawmakers want to tax downloads [OC Register]