The amount of digitally downloaded content is growing fast. Apple currently has a tracker on its homepage in anticipation of hitting 50 billion downloaded apps. In 2012, digitally downloaded games accounted for $5.9 billion in sales in the United States and now controls 40% of the video game market.
We have previously discussed the potential impacts of the Marketplace Fairness Act that would empower states to require online retailers to collect state sales tax. The Act could also impact digital downloads, such as music, books, games, and apps.
One of the purposes of the Marketplace Fairness Act is to level the playing field between online retailers and traditional brick and mortar business. However, the sale of digital content does not fit neatly into this purpose. Some digital content cannot be found in any brick and mortar business, such as apps and games for smartphones and tablets. However, books and music can be found in traditional brick and mortar stores and are also available for digital download. The Act could apply to all digital downloads—regardless of their nature.
The Marketplace Fairness Act empowers states to require online retailers to collect state sales tax, so it does not necessarily create a new tax. The laws of the individual states determine whether that state imposes a sales tax on digital downloads. If passed, the Act would enable states that tax digital content to require the distributors of digitally downloaded content to collect state sales tax. Currently, 24 states tax the sales of digitally downloaded content, and the remaining 26 consider digital downloads to be non-taxable goods. To find out whether your state taxes digital content, check out this chart produced by Cnet.
If the Marketplace Fairness Act is signed into law, you could see the price of your digital content increase. The Senate passed the Act last week, and it is now headed to the House. We will be sure to keep you updated on its future.
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