It stands to reason that Pennsylvania, rarely the league leader in “hip” or “modern,” wouldn’t be among the first states to tax items bought on-line known as digital downloads.
But, baby, we’ve arrived now.
Among the tax changes signed by Gov. Tom Wolf this week, the state’s 6 percent sales tax will be extended to the purchase of the next big Beyonce hit, a Pokemon Go app, or rights to watch Season Five of Netflix’s “House of Cards.”
The change takes effect Aug. 1, and from a policy standpoint it is probably one of the easier tax expansions the Legislature has voted in some time.
Here’s a few reasons why:
- There is an argument for level playing fields here. If I go to the book store and buy Jo Jo Moyes’ book “Me Before You,” I pay sales tax. If you order it from your e-book device, you don’t. So that’s an arbitrary market disadvantage both for the traditional merchant and his or her customers.
- From a purely political calculation, the new tax should land lightest on the older Pennsylvanians that, in conventional political seasons anyway, have been the most regular voters.
- With 23 states and the District of Columbia already having done this for up to a decade, the tax is a tried-and-true money-maker that many online content providers don’t really even fight anymore.
Karen Coates, chief of staff to Speaker of the House Mike Turzai, R-Allegheny County, said she saw very little interest group activity on the digital download issue, one way or the other.
In Pennsylvania, this tax expansion is expected to be worth about $47 million in 2016-17, according to Wolf Administration estimates – all paid by the consumer in a surcharge that, in most cases, is counted in cents as opposed to dollars.
Plus, some experts believe, it’s where the money is going to be for the foreseeable future.
In 2015, for example, the Recording Industry Association of America reports that of $7 billion national market for music sales last year, just $2 billion was spent CDs or vinyl – that’s down from $4.3 billion in 2009.
Digital sales, meanwhile, hit $4.8 billion, just the latest in a string of new highs.
E-books, while appearing to have hit a plateau in recent years, account for about 17 percent of all book sales, according to the Association of American Publishers.
“Taxing digital downloads is about as close to a no-brainer in tax policy as there can be,” said Michael Mazerov, a senior fellow with the Center on Budget and Policy Priorities’ State Fiscal Project.
“It’s a fairness issue for consumers who like traditional products that are already taxed. It’s a level playing field issue for retailers,” Mazerov said.
“And as more consumers move away from buying things in physical formats, if you don’t expand the sales tax to digital goods it means that sales tax revenue is going to erode and it will be harder to pay for the schools, health care and all the other services it funds.”
So, what is a digital download, exactly?
Examples of items that will be on Pennsylvania’s list include: purchases of music and video (think an iTunes purchase); streaming of movies or music (such as Netflix or other fee-based streaming services); satellite radio; e-greeting cards; digital books, often called e-books; apps – including in-app purchases; and online games.
The rationale is that when you buy these items at a store, you pay the sales tax now. Now, when you take possession of them through your electronic device, you’ll be taxed on the e-version, too.
As such, tax exempt products like the Bible, or magazine and newspaper subscriptions, still won’t be taxed.
The tax will be be triggered when the shopper makes a purchase that sends content through an account with a billing address in Pennsylvania.
It’s a pretty routine process at this point, explained Mazerov. “Apple has been charging sales tax in states for a decade and there’s no indication that there’s been any problems with it.”
PennLive reached out to Apple on Friday to get its reaction to Pennsylvania’s move, but received no response for this report.