With a sluggish economy, states in the US are looking at new ways to bolster state revenues. According to CNET, in 2008 nine states considered taxing digital downloads of legitimate digital media and five states have enacted the law to tax music, movie, and application downloads among others. This makes sense as more and more content are being sold online, including music, ebooks, programs, and applications. Apple had started the digital content movement with its stronghold on music and media content through its iTunes Store.
There are many more states that have already enacted the digitial iTax:
Including Nebraska and Tennessee, there are 17 states, plus the District of Columbia, that tax digital downloads, according to our earlier research: Alabama, Arizona, Colorado, Hawaii, Idaho, Indiana, Kentucky, Louisiana, Maine, New Jersey, New Mexico, South Dakota, Texas, Utah, and Washington.
Even if the laws do pass in other states, some may be safe from taxing because a business must have a geographical presence in the state in which the user downloads from for the user to be taxed. For example, if Microsoft only had facilities and offices in the state of Washington and no where else, and it sold Microsoft Office online as a downloadable application, users in New York would not be taxed for the digital content purchase even if New York had a download tax because in this instance Microsoft would have offices only in Washington. Should Microsoft have a presence in New York, then New York could tax its citizens.
With varying state definitions of what constitutes a digital download and what digital contents and types may be taxed, firms with offices and facilities in multiple states will have a hard time keeping abreast of state laws.