iTunes Tax

by Janet Meyer Apr 18, 2006

Did you remember to pay taxes on your iTunes downloads when you filed this year? Now that iTunes has surpassed one billion downloads, state governments want a piece of the action. This by itself isn’t anything new. According to CNet, 15 states and the District of Columbia already tax digital downloads. If you’re not taxed when you download the music, you’re responsible for reporting your purchases when you file your annual taxes. (Do I hear the sound of iTunes users quickly amending their returns? Probably not.)

What’s new is that states who have not previously taxed digital media downloads are starting to take note. New Jersey, for example, has proposed legislation that would tax iTunes and other downloaded media beginning October 1. States already taxing downloads use the rationale that it is the same as any other shopping or online purchases. Some states that do not specifically address this issue use other laws, such as those allowing taxation of computer software.

Still, most people don’t worry about paying taxes on these or other online purchases. Enforcement is difficult. Most states already tax other internet and out-of-state purchases but have found that consumers are not reporting and paying taxes these taxes. (If you didn’t know you were supposed to do this, well, now you know.)

Frequent online shoppers or digital downloaders might be interested in knowing that states are looking for ways to enforce tax payment. New York state, for example, has added a line to its tax form for residents to calculate what they owe on any out-of-state purchases, including internet and mail-order purchases. Residents who leave this line blank or indicate they owe nothing had better hope they don’t get audited. The burden of proof is on them, and they will need to produce credit card statements and bank statements to back up their claims. In other words, consumers need to keep track of every dollar spent in other states.

For more on what you can expect in ways to get you to pay your iTunes taxes, check out Internet Sales Tax Fairness. This article will give you an overview of an effort called the Streamlined Sales Tax, designed to simplify state tax codes and make it mandatory for out-of-state sellers (such as those on the internet) to collect taxes.

Efforts to tax digital media downloads are frequently referred to as the “iTunes Tax.” As iTunes continues to grow, expect more taxation legislation to follow, as well as new ways to enforce these taxes.

Some would argue that paying these taxes when consumers could just as easily download music for free just penalizes those who are trying to do the right thing by paying for it. In addition, as companies that offer these services take in more income, they pay more taxes. Others reconsider purchasing iTunes gift cards, arguing that it isn’t right to pay taxes when they buy the card and again when they (or the recipient) download music.

Would the addition of state taxes on iTunes downloads affect your buying habits? I’d like to hear if or how this type of legislation would make a difference to you. For myself, it just seems wrong to collect taxes on something consumers could get free elsewhere. What do you think?









  • Doesn’t affect me in the UK,  but it seems insane to me that consumers should have to keep a track of every purchase like this.  It would make much more sense to put the burden on the retailer.  we’re talking about online purcahses, so it can be easily be automated.

    I think if someone wanted to play safe with iTMS, then buy gift vouchers.  Surely they’d be subject to a local tax at the point of sale, and not be subject to further taxation ?

    I don’t however see any logic in the not paying tax on online sales because at least it’s better than not stealing.  The record companies need to protect their income, and so does government.  If they tax CD sales but not iTMS sales, then it’s hardly fair to the record stores - and the tax will still have to be collected from somewhere.

    Hywel had this to say on Apr 18, 2006 Posts: 51
  • well if that is the case, then I might owe a lot on taxes - hopefully this does not apply to Canadians.

    Looking at some past receipts, there is no taxes added to the purchases - the price quoted on itunes when I download is what is on the itunes generated receipt and it also what appears on my credit card (and yet again, another perk to buying digital music - no taxes grin )

    I know up here in Canada, the itunes gift card is ‘tax free’ - so the 20$ card only costs 20$ (but i imagine there is some strange invisible built in tax that we just don’t really see).

    The only logic that I can see in not charging taxes when we purchase on line is the difficulty in actually doing so - I know here in Canada, each province has a different tax rate ..

    Perhaps Apple has an invisible built in tax?—> the amount we are paying is the cost of the tune + tax = .99?

    kennie had this to say on Apr 18, 2006 Posts: 3
  • “For myself, it just seems wrong to collect taxes on something consumers could get free elsewhere. What do you think?”

    I don’t think the argument that it can be found for free elsewhere is a very fair one. I know where I could get illegal pirated CDs or DVDs or Software or magazines or practically anything, if I so wanted. Does this mean I shouldn’t have to pay tax if I wanted to buy these items from a store, just because I can get them illegally with no tax? I don’t think that’s fair on the taxman (and you’ve gotta be really hard pushed to hear me say that!)

    “Perhaps Apple has an invisible built in tax?—> the amount we are paying is the cost of the tune + tax = .99?”

    I wonder that about UK iTunes, because I can’t see any obvious thing mentioning sales tax (VAT) on my bill. But by law it should technically be in there somewhere.

    Luke Mildenhall-Ward had this to say on Apr 20, 2006 Posts: 299
  • You’re right when you say that just because users can get the music free somewhere else doesn’t make it morally right to do it; however, it’s largely thanks to the ease and pricing structure of the iPod that people stopped this practice. If taxes makes the pricing more than they want to pay, it is likely users will go back to free downloads. If this happens, the government won’t get anything anyway, and now the labels and artists will also get nothing.

    Janet Meyer had this to say on Apr 22, 2006 Posts: 36
  • I have always paid Virginia sales tax on my iTunes.

    chris1970 had this to say on Nov 13, 2008 Posts: 1
  • 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. -Jonathan Berkowitz

    Ana had this to say on Aug 24, 2011 Posts: 76
  • I agree that there should be no taxes on purchasing any online application. People are loosing interest on buying application online.
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