Download a song illegally = tax evasion?

Bear with me on this one, because it takes some leaps of logic that may or may not end up playing out this way in a court of law.

The theory is this: States are pushing ahead with new laws that will tax digital downloads (music, ebooks, and whatnot), the same way physical goods are taxed. Washington state will become the first to enact such a law, effective July 26 of this year.

So far so good, but now what happens if you download music or other digital files illegally, without paying for them? Is it possible you could be guilty of tax evasion as well?

A strict interpretation of the law seems to be yes: You're required to pay a tax based on the retail price of the music you obtain, no matter how you obtain it.

But would such a case ever actually be prosecuted? That's hard to say, but it seems unlikely. Unless you're downloading tens of thousands of songs illegally, the amount of tax involved would total only a few bucks. Most RIAA cases that have pursued to date concern dozens of song files, which would likely amount to a dollar or two in taxes evaded.

While copyright infringement cases include hefty federal penalties tacked on to the actual value of the damages, tax evasion is a different beast. The "value" of a song illegally distributed is a moving target and one that's much debated due to the additional distribution of that song, while the amount of tax evaded on that song is a definitively quantifiable number. As a result, tax evasion charges are typically leveled against large-scale crooks (Al Capone being the best-known example), who have failed to pay millions of dollars owed to the government, not a few cents.

Essentially, in this issue we really have something akin to shoplifting in the eyes of the law. Has any consumer ever been prosecuted for tax evasion for failure to pay a state sales tax on something he stole? How about for something the price of a candy bar?

Sales taxes present an even bigger legal challenge because technically it is the merchant who is normally responsible for paying the tax, not the consumer, who merely hands the money over to the retailer who simply holds it for passing on to the government later. State penalties for merchants who fail to pay sales taxes are generally quite mild (often just fines of a few hundred dollars) in comparison to the stiff prison sentences often handed down in federal income tax evasion cases.

So: Should you be concerned about questionably legal digital downloads landing you a spot in the pokey under tax evasion charges? I wouldn't worry too much about it (though I am not a lawyer, mind you) -- but I'd also advise avoiding such behavior in the first place, just to be safe, of course.