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iTunes Tax: Digital Downloads may no longer be tax-exempted

iPod users accustomed to tax-free music downloads from Apple iTunes Music Store soon may be in for an unpleasant surprise. The 99 cents iTunes' song may just get a little more expensive.

Until now, online distributed media like music, movies and other digital downloads have generally escaped the taxman eyes as the market was relatively small. But the spectacular success of Apple iTunes has prompted authorities to revisit the tax laws and Government is already preparing to tax the untapped revenue stream.

A CNET analysis shows that 15 states and the District of Columbia now tax downloads of music, movies and electronic books. Some high-tax states such as California do not levy the same charge on iTunes downloads, but that could soon change.

These states typically say taxing digital-media downloads is a matter of treating physical shopping and online purchases the same. Buying a CD at Tower Records is taxed, the argument goes, so why should a stream of bits from iTunes or be tax-free?

Currently, iTunes Music Store purchases include sales tax based on the bill-to address. Sales tax is only charged in states where music downloads are taxable.

More on website:
 • Democrates more likely to favor iTunes Taxes
 • States push to tax Net shopping
 • States seek levies on digital media downloads