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Yes, North Carolina — Let’s Be Fair About Digital Downloads

Last week, the Winston-Salem Journal published an editorial supporting a tax on digital downloads. The editorial claims that this tax is a matter of fairness. 

We agree that fairness is a good goal to have — which is why we are fighting hard against adding yet another tax burden to North Carolina consumers and businesses.

Contrary to the argument made by the paper’s editors, this new tax ONLY hurts in-state companies, since out-of-state sellers wouldn’t have to collect tax for sales they make to North Carolina consumers.   So the burden of collecting this new tax falls only on North Carolina companies, while any consumers who want to avoid the tax will get their downloads from out-of-state or foreign websites.  Forcing North Carolina businesses to charge higher prices by collecting incremental taxes is fundamentally unfair.

It is also unfair — and unwise — to claim that digital goods are identical to physical goods.  First, digital goods are not permanent property like tangible goods.  ( If you’ve ever lost your iPod or run it through the laundry, you know what I mean). You can’t re-sell your downloaded game or movie like you can re-sell a CD or DVD. And it’s nearly impossible to play your downloaded movie on your car DVD player. The experience of ownership for digital goods is vastly different from tangible goods, which needs to be taken into account by state tax authorities.

Finally, the impact that digital goods have on the environment is significantly lower than that of physical goods. When you buy a song on iTunes or a digital book on Amazon, you don’t contribute to creaton of harmful chemicals used to burn a CD, or the destruction of trees used to print a book. You burn no gas driving to the store. You dispose of no plastics or packaging when you get home. According to the Recording Industry Association of America, in 2007 nearly 100 million full albums’ worth of music was digitally downloaded by Americans.  In 2007 alone, more than 200 million pounds of natural resources were saved by US consumers buying music digitally instead of driving to the store for a CD. This works out to more than 380 pounds of natural resources every minute.

The digital economy is growing fast and the tiny carbon footprint of downloads is something that benefits all of us.  Digital downloads are the most environmentally responsible way to get movies, music and software; and tax policy is one of the ways we promote environmentally sound decisions.  For instance, hybrid vehicles are just a small share of the car sales, but nobody thinks we should end tax credits that favor hybrid cars.

The state of New York realized this, and earlier this year shelved its plan to tax iTunes, because it was too much pain for so little gain — only $15M of revenue, and new tax collection burdens that would fall only upon NY-based sellers. North Dakota just went in the opposite direction, explicitly exempting digital downloads from Sales Tax, mainly to increase their state’s attractiveness for economic development.

So, we echo the call to North Carolina legislators to be fair — fair to their state’s businesses, fair to cash-strapped North Carolinans trying to make ends meet in this harsh economy, and fair to our battered environment. Stop the effort to tax digital downloads.