Capital News Service

of the Michigan State University School of Journalism

No app for iTunes tax in Michigan — so far

By JOSH GARVEY
Capital News Service

LANSING – iTax iTunes? Does Michigan have an app. for that?

Not yet.

Michigan doesn’t collect sales tax on such transactions, but Indiana and Wisconsin do, and Illinois’ governor considered it as a way to meet a budget shortfall before backing away from the idea.

iTunes and similar online services let people download music or videos from the Internet for about $1 a song or a few dollars for a video, which is usually charged to a credit card.

“I think one of the issues here is that there doesn’t seem to be any will to do anything that involves money in terms of a new tax,” said David Zin, an economist with the Senate Fiscal Agency.

The nonpartisan agency analyzes tax and budget issues for the Senate.

Judy Putnam, the communications director for the Michigan League for Human Services, said that although there probably isn’t the necessary political support for new taxes, that attitude may change “as people come to realize how deep these cuts are going to be,” in the state budge.

Zin said that the idea of a tax on iTunes and other-services has come up a couple of times.

“One of the issues we would have with a downloadable content tax is enforcement,” Zin said. “If I download a file from the Symantec website, and Symantec is out of California, the server is in Germany and I’m in Michigan, how do we find out that I owe sales tax on it and do I?

Perhaps I owe use tax on it because I brought an untaxed item into the state and used it,” he said.

Confusion over how such a tax would work also extends to legislators.

“The whole ‘Internet and sales tax’ problem is difficult,” said Rep. Tim Melton, D-Pontiac. “I don’t really have a comment about it.”

Melton is vice chair of the House Tax Policy Committee.

Michael LaFaive, the director of fiscal policy for the Makinac Center for Public Policy in Midland. said that his free market- oriented think tank opposes to any tax on downloads.

“Just because something exists doesn’t necessarily mean that a tax should be slapped on it,” he said. “The state takes enough from us and does enough to us already.”

Putnam of the League for Human Services said that her group hasn’t looked specifically at any sort of iTunes tax.

But the league wants to update Michigan’s sales tax to apply to services as well as products. She said an iTunes tax seems to be in line with that stance.

“In general, we advocate for a more modern tax structure,” she said. “Economists will tell you that the way to a solid, stable base is to tax the growing parts of a society.

“Downloads would seem to qualify as growing,” she said.

Part of the reason sales tax laws differ so much from state to state is a U.S. Supreme Court decision that requires only businesses with a physical presence in a state to collect sales tax on products sold there.

That dictates Wisconsin’s law, which requires retailers with a store in the state to collect sales tax. Since Apple has a store in Wisconsin, that means iTunes sales are taxed directly to state residents.

A state can only collect use tax on sales by businesses without a of physical presence in the state.

In Indiana, the tax on downloaded content is part of the state’s use tax. Use tax is supposed to be reported on a person’s income tax return.

Stephanie McFarland, the director of public relations for the Indiana Department of Revenue, acknowledged that enforcement can be difficult. Of the 3.1 million people who filed tax returns in Indiana in 2008, only 26,000 reported a use tax and the state collected $1.6 million from them.

Michigan’s use tax covers products but not downloaded content.

© 2010, Capital News Service, Michigan State University School of Journalism. Not to be reproduced without permission.

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