Don’t Tax My iPod

Today is tax day, but those who think this expensive event only comes once a year should examine monthly phone bills and beware of recent actions by greedy bureaucrats.

Anyone who’s ever taken the time to inspect their landline or wireless phone bill will know that, on top of the price of service, the government piles on a heap of taxes such as the telecom excise tax, the universal service fee, and various others. Indeed, the combined state and local tax rate for wireline telecom services averages 14 percent and can be as high as 30 percent, putting communications in the sin-tax bracket along with alcohol and cigarettes.

Greedy Bureaucrats

For a country that supposedly values free speech, it’s ironic that the tax system is so regressive, favoring communication for the rich. Of course, if one has switched their phone service from wireline to voice over Internet protocol (VoIP), then the only tax they might pay is the Federal Excise Tax (FET). The U.S. Treasury Department has not issued an official opinion, but some VoIP firms are collecting the tax as a pre-emptive measure.

The FET was first established in 1898 to fund the Spanish American War. It was supposed to be temporary, but that promise clearly wasn’t kept. Now, greedy bureaucrats seeking to expand their budgets and power are proposing to expand the FET to apply to Internet access, erecting yet another barrier to communication for the nation’s poor. Fortunately, some legislators in Congress are paying attention and attempting to fight back.

This week, Senator George Allen (R-VA) announced plans to introduce legislation that would wall off Internet access from this nasty tax scheme.

Outdated Logic

“When the temporary tax on telephones was passed in 1898, there were just 1,300 telephones — they really were a luxury item,” said Senator Allen when speaking at a briefing hosted by the Computing Technology Industry Association (CompTIA). “We didn’t win the Spanish American War to have our own government ‘federales’ burdening Americans with taxes on innovation over 100 years later.”

He’s got a point, but it isn’t just the federal government Americans have to watch. Brewing in almost complete obscurity over the past couple of years is a scheme called the State Simplification Tax Project (SSTP). The name alone should make Americans shudder as they realize the plan aims to make it easier for red-tape mandarins to drain more tax dollars out of an already over-taxed population.

That’s right, state bureaucrats are working hard to avoid a 1992 Supreme Court ruling that said forcing remote sellers to collect sales tax in states in which they do not have a physical presence would constitute an undue burden on retailers and commerce in general.

By attempting to “simplify” tax systems, state officials are hoping to pull in more cash to fix budget shortfalls all across the nation. But budgets should be balanced by spending within a state’s means, not by reaching yet again for the taxpayer’s wallet — especially when that reach is aimed at digital goods, or as some call it, the “iPod tax.”

Slippery Slope

The move to tax digital goods should throw the tech community into a Boston Tea Party tizzy, especially when it’s revealed that California, home of Silicon Valley, is going along. By backing the idea of “destination-based sourcing of digital goods,” the California Board of Equalization supports forcing local digital goods vendors to collect and remit sales taxes for other jurisdictions.

Once that happens, of course, it’s easy to see how, under the guise of “tax fairness,” a Golden State iPod tax won’t be far behind. And unlike Congress, where Americans have Senator Allen sticking up for them, no California legislators seem to be following the issue.

Taxation, which hounds consumers all year, has a negative impact on economic growth and innovation. Increasing the cost of communication and high-tech goods serves to reinforce out-of-control spending habits by government officials and should be stopped. It’s time to tell policymakers to keep their hands off the nation’s tech, especially when it comes to digital content for iPods.

Sonia Arrison, a TechNewsWorld columnist, is director of Technology Studies at the California-based Pacific Research Institute.

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