California Lawmaker Wants To Change Law To Tax iTunes; Pretending Infinite Goods Are Tangible

from the reality-is-meaningless-if-it-gets-in-the-way-of-tax-revenue dept

Slashdot points us to the news that a Los Angeles (surprise, surprise) area politician is pushing to change a California law that requires sales tax on the sale of tangible goods. He wants the law to be adjusted such that digital goods would be considered tangible goods so they can be taxed. Effectively, this is a way of applying a sales tax on iTunes downloads as a way to make up the California budget shortfall. Considering that the entertainment industry has been trying to convince the world that intellectual property is no different than tangible property, it’s not surprising that a politician coming from LA would see no problem with pretending infinite goods are tangible goods. However, it seems likely that such a plan would backfire. If anything, it will push more people to look for alternatives (potentially unauthorized) alternatives if California forces an unwanted price increase on iTunes. Also, if the law starts treating digital goods as tangible goods, will that give people other rights — such as the right to do what they want with the content after purchase? It looks like there’s plenty of opposition to this plan, so it probably won’t go very far. In the meantime, though, does someone want to explain the difference between tangible goods and infinite goods to Assemblyman Charles Calderon?

Filed Under: , , , , , ,

Rate this comment as insightful
Rate this comment as funny
You have rated this comment as insightful
You have rated this comment as funny
Flag this comment as abusive/trolling/spam
You have flagged this comment
The first word has already been claimed
The last word has already been claimed
Insightful Lightbulb icon Funny Laughing icon Abusive/trolling/spam Flag icon Insightful badge Lightbulb icon Funny badge Laughing icon Comments icon

Comments on “California Lawmaker Wants To Change Law To Tax iTunes; Pretending Infinite Goods Are Tangible”

Subscribe: RSS Leave a comment
25 Comments
scote (profile) says:

So what would their property tax be now?

Seems to me this could really backfire. If copyrights and electronic files are tangible goods, the consequences will be enormous. Additionally, it will affect freelance workers who’s perform computer work. All that work is electronic and they will now have to charge sales tax for IP work, writing–anything that is transmitted over a computer.

Anonymous Coward says:

iTax

C’mon Mike, let’s be honest. You only contend this because a new tax would mean the price of iTunes might rise, this has nothing to do with the semantic debate over tangible vs intangible.

This is no different than Michigan residents (myself included) coming up with all the reasons a “sin” tax seems unjust. You need to put the screwy rationale behind the justification for the tax aside, and find other reasons it shouldn’t exist because no amount of proving California politicians wrong will make any headway for your cause. Let’s say you make some awesome case for identifying, rightfully so, that digital goods are intangible. Do you really think that would prevent an “iTax?”

You should focus on either coming up with a new source for the necessary evil of taxes, or put your energy towards curbing the massive spending that creates the need for such taxes. Anything else is a waste of your time.

BTR1701 (profile) says:

Re: iTax

> You should focus on either coming up with a
> new source for the necessary evil of taxes

The thing is, these taxes aren’t necessary. California is the populous state in the union and its residents are already taxed more heavily than any other in the nation. The fact that they still can’t seem to cover the basic services (while at the same time funding every politically-correct special interest group that screams loud enough) speaks to the inherent moral bankruptcy of the state’s politicians.

Until that problem is resolved, no amount of taxes will ever be enough.

comboman says:

intangible is not necessarily infinite

While I don’t think downloads should be taxed, I don’t think your statement is correct regarding infinite versus intangible. Tangible/intangible is not the same as finite/infinite. An infinite item is something that has an unending supply (or can be reproduced at zero cost). An intangible item is something that cannot be detected with the senses (like an idea). They are very different concepts.

Mike (profile) says:

Re: intangible is not necessarily infinite

While I don’t think downloads should be taxed, I don’t think your statement is correct regarding infinite versus intangible. Tangible/intangible is not the same as finite/infinite. An infinite item is something that has an unending supply (or can be reproduced at zero cost). An intangible item is something that cannot be detected with the senses (like an idea). They are very different concepts.

Oh, I agree. Intangible definitely is different than infinite, but in this case, all the intangibles he’s looking to tax are infinite goods… But, yes, I should have been more careful in the explanation.

Dave (profile) says:

While I don’t want more taxes I think states are within their rights to tax any sort of sale. That being said no law talking about “tangible” should apply. If they had a law simply stating that the sale of goods or services can be taxed then it would apply.

But here is the second problem. They would get very little money from this as they would only get money from California residents buying from Itunes. It would be up to all the other states to folow suit to get their own money.

Robin Bloor (user link) says:

Infinite Goods/Internet Tax

“Infinite goods” is a truly misleading concept. There is no such thing. Read here for explanation
http://havemacwillblog.com/2008/03/28/the-myth-of-infinite-goods/. So the posting is really about taxing Internet businesses selling downloadable product run out of California. If you tax such businesses, you’ll run them out of California.

Mike (profile) says:

Re: Re: Re: Infinite Goods/Internet Tax

I don’t know about the shout down, but you’re right that a logical, conflicting argument will fall on deaf ears.

Not deaf ears at all. I’m always willing to engage in a debate on the topic, and have changed my thinking on things over time a great deal based on these discussions. Otherwise, why would I even bother to engage in these discussions?

jonnyq says:

Re: Infinite Goods/Internet Tax

So your entire point is that “infinite goods” aren’t “infinite” but your only example of rebuttal is an unrelated quote about a different subject?

If you want to say that something isn’t “infinite” because the number “infinity” is never reaches – i.e. there are never “infinity” copies of an MP3, then fine, but you’re missing the point. The point is that an MP3 can be copied (i.e. a new good created) at zero cost to the producer (because the copies are made by the consumers themselves, etc.) If you want to say that the bandwidth isn’t free, then fine, but that’s still not the point.

Then you also “debunk” economic growth caused by free goods because you think that economic growth IS the proliferation of the free goods. That’s incorrect. The economic growth comes when the free goods lead to greater sales of scarce goods such as tangible goods or services.

You seem to misunderstand pretty much every facet of the concept.

Someone posted a GREAT link about “12 ways to make money from infinite goods”. It was a perfect textbook article, and I just can’t find it again. I can’t remember if Mike or Timothy linked it.

DanC says:

Re: Infinite Goods/Internet Tax

“Infinite goods” is a truly misleading concept. There is no such thing. Read here for explanation

It’s a particularly weak explanation, actually. The author attempts to “disprove” infinite goods by equating infinite them with plentiful supply. Cost is also introduced into an effort to disprove the concept, but it really doesn’t have much to do with the argument. There will always be costs, however small, involved in reproduction, but those indirect costs don’t limit supply.

If something can be reproduced ad infinitum, then it’s an infinite good. In terms of a digital good, I suppose you could argue that the supply is limited to the total hard drive capacity of planet…but that is available in essentially unlimited supply as well.

Chronno S. Trigger says:

Re: Infinite Goods/Internet Tax

When I can find a copy of Genesis II (a pilot to a show created by Gene Roddenberry that never went past the one episode) after 35 years (in good quality too), yes I’d qualify digital goods as infinite.

What he speaks of is the fact that once I put a file on a server that file can be copied infinitely without degrading. Then I can copy that copy and a copy of the second copy and they will still be identical. So once the copy gets out the original douse not have to be available any more becouse an identical copy is still available.

Mike (profile) says:

Re: Infinite Goods/Internet Tax

“Infinite goods” is a truly misleading concept. There is no such thing. Read here for explanation
http://havemacwillblog.com/2008/03/28/the-myth-of-infinite-goods/. So the posting is really about taxing Internet businesses selling downloadable product run out of California. If you tax such businesses, you’ll run them out of California.

Hi Robin. I’m a fan of your work, but I hadn’t seen this response to my work. I’m rather surprised that it’s so weak.

First off, you make a few statements that are simply incorrect: “Scarcity can never be removed, only reduced to a very low level.” That is simply incorrect. Certain things (ideas, for example) are infinitely reproduceable.

Then you discuss what happens when supply is *plentiful* which is not the same as when it’s *infinite*. And I agree when you say there’s nothing new — but I disagree about the idea that it’s well understood. The problem is that people freak out about zero (as you have done implicitly, by ignoring the zero for “very low.”) Yes, if supply is plentiful, price falls to very low. But if supply is infinite, it falls to zero. You seem to stop short of that because you pretend that infinite goods do not exist. You are incorrect on that statement.

You then seem to confuse marginal costs with total costs in trying to explain why nothing can be free, and you fail to break out the basic components of scarce and infinite goods (which I know, you don’t believe in). You are correct that any infinite good is tied to scarce goods, but you incorrectly then assume that means that there is no infinite good. You implicitly bundle them together into a single good… which is where the problems in your reasoning occur.

You then try to simplify my statement about infinite goods growing the market into: “nothing more than that low prices grow demand by attracting more buyers.” That’s actually incorrect. It’s not what I’m saying at all. More buyers/lower prices doesn’t grow a market — it just changes the market. Infinite goods actually grow a market. It’s the difference between sliding up and down the demand curve (what you describe) and *moving* the demand curve (what I describe).

As for the Malthus thing, I never said his mathematics were at fault. In fact, I completely agree with you that he was incorrect in expecting linear growth — but that’s because he, like you, misunderstood infinite goods. The reason linear growth in food didn’t occur was thanks to increased efficiency that came from new ideas (infinite goods).

You then TOTALLY misunderstand what I said about Dean Kamen, claiming that I claim he shouldn’t want personal reward. Did you not read what I wrote? I was explaining how the personal reward could be much greater for him. It’s like the exact opposite of what you think I said. Also, I wasn’t saying that the machines should be free — but the *idea* should be free.

And then you name a bunch of scarce goods that you mockingly claim “should be free” totally missing the point that it’s not scarce goods that should be free, but infinite ones.

You mock a lot, but do so in a way that totally misunderstands what we’re talking about. I know you’re pretty sharp so I’ll assume it’s my inability to explain this well enough, but I think you might want to rethink what you wrote.

Ed says:

Infinite Goods/Internet Tax

Well, I read the articles, and don’t see the point. Basically the author says nothing is infinite, because there are other costs. Online Music is not free, because you have to pay for the internet. Well ya. But I pay for that now, whether I use ITunes, or Amazon, or not. So, that part is no cost. Yes, I have to pay for their bandwidth, but only because I have “must” get it from them, to get it legally. If a friend gave me a copy, the only cost to me is my moral belief that I owe the artist something out of respect (and the cost of storage me). The same goes for his arguments on why software is not free. They boil down to:

Manufacturer Reputation.
Ease of use.
Support.

None of this has anything to do with the cost of the software itself, but rather, as Mike points out, how you make money with something that costs little or nothing to produce copies of. Lets face it, a copy of MS office, when you eliminate the fancy packaging etc, costs a couple dollars. You pay for the things you get with it, the things mentioned in the referenced articles. But that is what you are paying for, the things that come with the software. The compatibility with others, the reputation, the usability, the support (though not from MS, but friends, and those who write books on it). That is what I paid for, when all is said and done. And yes I paid, perhaps more times than I should have, for my use of the same version of the software, but those are the rules.

nick says:

What's New Here?

As Sean noted, plenty of states already tax iTunes. I would add that Connecticut does too.

Actually, the way the tax on iTunes works is pretty ridiculous. There’s no indication that there is a tax until you purchase the songs, which seems unfair. And whether or not you get hit with the tax depends on how you set your home address for your account (not you billing address). I had a gift certificate and noticed that after purchasing a few songs that they were costing me more than $.99. After simply changing my address to a neighboring state, one that does not tax iTunes, I was able to avoid the tax altogether.

Yeah, ok, taxing iTunes may be silly in principle. In reality, it doesn’t really mean anything if there’s such an easy way to cheat the system.

Norm (profile) says:

Who cares about iTunes?

For at least 20 years – long before anyone even imagined iTunes – I used this feature of the CA tax law to saves tens of thousands of dollars for companies I worked for. We insisted that vendors allow us to download their software and not get any CDs or manuals (nothing physical). We did not have to pay sales taxes on the purchases. The largest purchase was ~$400K of SAP software and we avoided $30K in sales taxes.

I thought however that the state had changed something. A couple years ago I purchased about $100K of Oracle licenses and no matter what we demanded, Oracle insisted that by law they had to send us a CD, so we had to pay the taxes. That was one VERY expensive CD.

I am NOT in favor of raising taxes, but this quirk in the law always seemed strange.

Add Your Comment

Your email address will not be published.

Have a Techdirt Account? Sign in now. Want one? Register here

Comment Options:

Make this the or (get credits or sign in to see balance) what's this?

What's this?

Techdirt community members with Techdirt Credits can spotlight a comment as either the "First Word" or "Last Word" on a particular comment thread. Credits can be purchased at the Techdirt Insider Shop »