New York Enacts Digital Retail Tax - Is Your State Next?

December 17th, 2008 | by alexis |

In New York this week, Governor David Patterson announced the state would begin charging a digital retail tax for online purchases. The tax will go into action along with similar plans from Paterson to raise taxes on movie tickets, soft drinks, sweets and snacks, and luxury clothing items among other items.

Altogether, Paterson hopes to implement 88 new fees and taxes on what he’s deemed superfluous items and purchases. The move to join the 17 other states and the District of Columbia who have already enacted a digital retail tax comes as states struggle to generate public revenue.

Paterson’s digital retail tax plan calls for a 4% tax to be implemented on all purchases from sites such as Amazon.com, Bestbuy.com, and Itunes. While it is undoubtedly a price hike, purchasing online is still the cheaper choice, as the sales tax in the state of New York for store-bought items stands at 7.5%.

Instances of digital retail taxing are not a new phenomenon in some parts of the country. The tax dates back to 2006, when fifteen states and the District of Columbia revisited their legislation after noticing that digital sales of music nearly tripled between 2004 and 2005 worldwide, from $400 million to $1.1 billion. Sales in 2007 reached $2.9 billion.

Along with New York, the other states cashing in on the digital retail tax are:

  • Alabama
  • Arizona
  • Colorado
  • Hawaii
  • Idaho
  • Indiana
  • Kentucky
  • Louisiana
  • Maine
  • Nebraska
  • New Jersey
  • New Mexico
  • South Dakota
  • Tennessee
  • Texas
  • Utah
  • Washington

The download service that will be affected the most is likely Apple’s iTunes program. The online store is the #1 retailer of music in the country, selling more than any .com service or bricks-and-mortar store. It took over the #1 spot nationally in April when it ousted Wal-Mart. Currently digital sales account for 30% of revenues in the U.S. music market alone.

Digital audiovisual retail sites should also expect to see a change in sales as a result of the tax, as will sales of pre-written software and digital book sites. The International Digital Publishing Forum reported electronic book sales are up 25% from last year.

With the economy still unstable and unlikely to rally anytime soon, how much the individual states will benefit from the digital retail tax and if it will be enough to help balance the budgets is still left to be seen.

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  1. One Response to “New York Enacts Digital Retail Tax - Is Your State Next?”

  2. By Peter on Dec 22, 2008 | Reply

    Definitely bad news, but I wonder how it relates to the supposed “Amazon Tax” that we saw popping up a few months ago? http://www.istockanalyst.com/article/viewiStockNews/articleid/2837151

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