New York Governor Proposes Tax on Digital Goods

The New York State flag

New York Governor Andrew Cuomo has proposed a tax on digital goods like music files and subscription services such as Spotify, ebooks, and video-on-demand services like Netflix. The proposal is part of a report from the New York State Tax Reform and Fairness Commission which Governor Cuomo formed last year.

According to the Commission's report, which lists the proposal under Option 1b, New York "forgoes $35 million per year" by not taxing digital products. Option 1a of the report suggests applying sales tax to clothing and footwear costing less than $110.

States such as Wisconsin, Vermont and and New Jersey tax digital goods as any other product in its category, meaning an album bought on the iTunes store is treated the same as an album purchased in compact disc form. The fees are applied as necessary according to the postal code of the customer, as the iTunes Store Terms of Service makes plain from its outset: "Your total price will include the price of the product plus any applicable sales tax; such sales tax is based on the bill-to address and the sales tax rate in effect at the time you download the product. We will charge tax only in states where digital goods are taxable."

Meanwhile some states, like North Dakota, explicitly prohibit taxation on digital goods. (So, if you're planning on spending a fortune on ebooks or MP3s, it may behoove you to decamp for the Upper Midwest.)

Internet access itself is protected by the Internet Tax Freedom Act, signed into law by Bill Clinton in 1998. The law was intended to foster access by limited businesses' ability to tax internet access fees as well as things such as bandwidth, bit usage, email, etc. The law was amended in 2007 to include language barring "multiple or discriminatory taxes on electronic commerce," which expires in November, 2014. The law does not limit states' rights to tax as they see fit within the limits of the Constitution.