New York Latest State To Propose 'iTax'

NEW YORK - A budget proposal from New York Gov. David Patterson calls for a tax on Internet downloads, making the Empire State the latest to jump on the "iTax" bandwagon.

Digital download taxes - which are imposed at the time of an Internet purchase - are the law in five states, with several other states considering similar bills. The tax is applied to "digitally delivered entertainment services," meaning everything from software downloads and music from iTunes to audio books from Amazon and adult content from various sites.

Patterson's iTax proposal is part of an overall plan that calls for 137 new or increased taxes and several layoffs and budget cuts in an attempt to close a $15.4 billion budget gap. In addition to a tax on digital downloads, other taxes are proposed for non-diet soft drinks, alcohol and cab fares.

Under the proposal, downloading a 99-cent song from iTunes would now cost New York residents $1.07.

Because most tax laws were written before the creation of the Internet, downloads were long considered exempt from taxation. And to keep it that way, some industry groups have pushed the "green" factor of downloads as opposed to physical DVDs or CDs.

Officials from NetChoice, a tech industry group that includes eBay, AOL and Yahoo as members, have argued that digital downloads eliminate the need to drive to a store, as well as the need for plastics and packaging.

Others against the iTax argue that it makes piracy even more appealing.

The iTax portion of Patterson's budget plan is not the only one being criticized.  Unions for health care workers and public employees are openly criticizing the proposal, and state lawmakers have reported receiving calls from constituents upset about cuts to school aid and Medicaid reimbursements.