Same song, same tax
Go to Newbury Comics in Harvard Square to buy Bruce Springsteen's ``Born in the U.S.A.," and you will pay 5 percent to the Massachusetts taxman. But download that same single on your iPod and you'll pay the taxman nothing. That surely would have pleased the late great George Harrison, who wrote the Beatles' acerbic ``Taxman." But as tax policy it makes no sense.
The revolution in the way we buy music and movies -- and the way we tax or don't tax those sales -- is undermining the competitive balance between Main Street retailers and the distant giants that dominate on line sales. It is also draining sales-tax revenues -- a drain that will only accelerate.
The numbers are getting too big to ignore, and some states are moving to adjust. A survey by CNET News.com found that 15 states now tax downloads of music, movies, and electronic books. Some do it through legislation; others do it through interpretation of current law. Massachusetts is not among them.
The state's revenue department, once a bulldog on tax loopholes, has gotten quiet since the business community started pushing back and the Romney administration started listening. In one of its last initiatives more than a year ago, the revenue department successfully argued to tax software sales. The logic: As software is increasingly being sold through downloads rather than off the shelf, tax law needs to catch up.
Exactly, in fact, what is happening to the music and video business. The revenue department doesn't see it that way.
``While it's true DOR sought and received legislative authority to close the loophole that allowed canned software downloads to go untaxed, downloaded music is an entirely different issue," says spokesman Tim Connolly. ``Under current Massachusetts law, we consider music downloads as `information,' or `content,' not a retail sale of tangible personal property, and therefore not subject to sales or use tax."
Music and video sales are just a piece of the Internet action. Senator Richard T. Moore, Democrat of Uxbridge, points to a University of Tennessee study that estimates Massachusetts will lose up to $286 million in taxes to Internet sales by 2008 and up to $540 million when catalog and television sales are included. Moore is pushing Massachusetts to join a group of 22 states that have signed an agreement to create a uniform system to collect those sales taxes.
While Internet taxation creates a lot of heat, some of the biggest on line sellers are matter-of-fact about the issue. ``ITunes Music Store purchases will include sales tax based on the bill-to address and the sales tax rate in effect at the time of the download," Apple says. Adds Wal-Mart: ``Some states charge sales tax on music downloads. If your state charges sales tax, this will be added to your order total during checkout."
Why would any state want to leave that money on the table? And why would any state favor remote retailers over home-town retailers? What we need are neutral tax rules that create a level playing field for all sales channels. ``Born in the U.S.A." is the same song whether purchased at Newbury Comics or downloaded on an iPod. Why tax it differently?
Neighborhood news: Larry Rasky, chief executive of Boston public relations shop Rasky Baerlein, will be taking a leave of absence sometime after the November elections to work on Senator Joseph Biden's presidential campaign. Rasky, who was communications director for the Delaware Democrat's failed presidential bid in 1987, is already spending up to two days a week on the campaign. ``The good news," says Rasky, ``is I have a lot of people capable of running my place."
Robert Silverman, who as Harvard's director of planning in the 1980s drew the road map for the university's Allston expansion, has retired as vice president of administration at Emerson College, where he spent 14 years fashioning the school's downtown campus. His replacement, David Ellis, former president of Newbury College, has big shoes to fill.
Steve Bailey is a Globe columnist. He can be reached at bailey@globe.com. 
