Gamers in Wisconsin are going to have to cough up some extra cheese for their DLC following a decision by the state to impose a five percent tax on all digital download purchases.
The new tax will cover a range of “digital products” including music, ring tones, videogames, digital books, electronic greeting cards, digital art and more. The roughly $10.9 million the new tax is expected to raise between 2009 and 2011 will go toward trimming the state’s $6 billion budget deficit. Yes, billion; the impact of this new tax will obviously be neither immediate nor statistically relevant.
Nonetheless, State Senator Kathleen Vinehout said the new tax was necessary to bring Wisconsin into the modern age. “One of the problems we have with the tax code is that it doesn’t grow with the economy,” she said. “Right now we’re moving into a whole new world of products that are transmitted over the Internet. It’s part of keeping up with the times – part of modernizing our tax code.”
Jessica Iverson of the Department of Revenue concurred. “I think it’s more about the modernization of the tax law to keep up with where technology is,” she said, adding that the new tax will “level the playing field” for companies who have to compete with other business that don’t charge sales tax.
But State Representative Scott Suder claimed the tax would be an unfair burden on “those who can least afford it,” saying, “It’s basically taxing students to fill in the Doyle budget shortfall, and I think that’s unfair.” Fellow Rep. Jeff Smith also questioned how the government would collect the taxes, saying, “I don’t know how we as a government are going to, at this stage anyway, audit somebody’s downloads so that we know what they owe in taxes.”
I don’t think it’s as complicated as he suggests; simplistically, the tax could simply be charged to the seller based on the state of residence of the purchaser, much as is done with online purchases of “real” products. Specifics points regarding the implementation of the tax do need to be addressed but of greater concern in my eyes is the potential impact it could have on the digital marketplace. The last thing needed by content providers struggling with rampant piracy and file sharing is yet another disincentive to buy their products legally. It’s only fair to render unto Wisconsin that which is Wisconsin’s but it would be nice to see some concern given to a segment of industry that in many ways is still fledgling.
The new tax is set to take effect on October 1.