May 4, 2009

Co-Chairman, Sen. David W. Hoyle
Co-Chairman, Sen. Daniel G. Clodfelter
Co-Chairman, Sen. Clark Jenkins
Finance Committee, North Carolina Senate

Subject: SB 99, opposition to a “privilege tax” on Internet ticket sales

Dear Co-Chairmen Hoyle, Clodfelter, and Jenkins:

NetChoice writes to oppose Senate Bill 99, which singles-out the Internet ticket resale market for a “privilege tax.” We believe SB 99 has a number of problems associated with it, including (1) conflicting with federal law that prohibits discrimination against the Internet, (2) the double taxing of revenue, (3) the lack of accounting for net losses, (4) not having a de minimus threshold, and (5) the negative unintended consequences on ticket prices.

  1. SB 99 violates federal law because it explicitly targets Internet—and only Internet—ticket sales. The Internet Tax Freedom Act Amendment Acts of 2007 (Public Law No: 110-108) provides a moratorium through November 1, 2014 on any “multiple or discriminatory taxes on electronic commerce.” This law bars federal, state and local governments from imposing discriminatory Internet-only taxes such as bit taxes, bandwidth taxes, and email taxes. It also prohibits the sort of prima facie discrimination exhibited by SB 99—“Reselling or offering to resell admission tickets on the Internet…”). Because this tax applies to revenues received from Internet transactions but not to offline sales, it clearly violates the Internet Tax Freedom Act.
  2. SB 99 imposes a privilege tax on Internet ticket sales that amounts to double taxation. Income earned ticket reselling is already taxed. Companies and individuals that earn revenue from reselling tickets already pay income tax. Moreover, the same ticket could be resold numerous times, resulting in multiple taxation of the same increment over face value.
  3. SB 99 fails to consider that losses can and do occur even when tickets are sold above face value. For example, a buyer may purchase a ticket for $120 on the resale market a ticket that with a printed face value of $100. If that buyer resells it for $110, she incurs a $10 loss but would still be liable for taxes on that $10. In this regard, ticket reselling is fundamentally different from the activities already subject to the privilege tax under G.S. 105-37.1(a).
  4. SB 99 lacks a minimum threshold before the tax applies, and therefore will especially burden everyday North Carolina sports and music fans. A fan is faced with legal penalties for not reporting his or her gross receipts, even on a single sale by a North Carolina resident not normally engaged in ticket reselling. It will turn a next-door neighbor into a tax cheat, merely for reselling an event ticket at market prices and failing to file a privilege tax payment.
  5. Finally, SB 99 will distort ticket prices to the detriment of consumers. It excludes from gross receipts the price printed on a ticket. This gives resellers of tickets that also participate in the primary market an incentive to raise initial ticket prices to reduce the revenue attributed to resale, and thereby avoid the privilege tax. SB 99 would therefore have the unintended effect of raising ticket prices on the primary market.

Ticket reselling provides consumers with greater choice and opportunity to buy and sell tickets to their favorite events. The rise of online ticket exchanges has brought more competition, safety, and convenience to music and sports fans—a privilege tax on Internet reselling undermines these gains.

Thank you for considering our views, and please let me know if I can provide further information.


Braden Cox
Policy Counsel, NetChoice

cc: Members of Senate Finance Committee