New money-making idea for state:iTax

Quinn proposes Illinois join 19 other states in taxing music, movie downloads

Wednesday, April 21, 2010

SPRINGFIELD — Even a trip to iTunes for a new song or movie might soon be within the grasp of Illinois’ tax collectors.

Imposing the state’s sales tax on downloaded songs and movies surfaced as a new money-making idea Tuesday from Gov. Quinn’s administration to help bail out the state, which has a $13 billion deficit.

Quinn also proposed selling off a portion of tobacco settlement proceeds to raise $1 billion; requiring banks to divulge the accounts of tax scofflaws to arm the state with a potent new tool to collect unpaid taxes, and extending for four months deeper into the next fiscal year the timeline for the state to pay leftover bills from this year.

But the proposed digital download tax, while not immediately a huge revenue generator for the state, could have the broadest reach considering how many people walk around with iPods or iPhones.

Now, digital downloads are not taxed by state government, depriving Springfield of up to $10 million in revenues annually. But that figure could grow over time as more people download entertainment from Internet sites such as iTunes and Amazon.

“We think that’s an area where we’ve not kept up with technological change,” said David Vaught, director of Quinn’s Office of Management and Budget.

There was a time when shoppers paid the state sales tax when they bought record albums, compact discs or cassette tapes from stores, but that taxation never migrated to the Internet, Vaught said.

Under Quinn’s proposed download levy, the state would get 50 cents on the sale of a $9.99 album and 75 cents on the sale of a $14.99 movie.

But that wouldn’t happen without a fight from Republicans, who criticized the plan.

“It will be an interesting education for younger voters about the reach of the state’s treasury into their pockets,” said Sen. Matt Murphy (R-Palatine). “I don’t suspect it’ll be well-received at all.”

A leading technology trade group also sounded off against the download tax, saying it would fuel music and video piracy and drive tech companies out of the state.

“We believe the last thing the state of Illinois wants are unintended consequences for an industry that drives growth, innovation, and leads in new job creation for our country and economy,” said Ed Longanecker, executive director of TechAmerica Midwest.

Since 2007, 19 states have imposed similar download taxes, including Indiana, Wisconsin, Kentucky, Mississippi, Nebraska, New Jersey, South Dakota, Tennessee, Utah and Washington, according to the National Conference of State Legislatures.

The proposal was included in $391 million worth of tax law changes mainly affecting businesses that Quinn presented to the four legislative leaders at a closed-door budget meeting Tuesday.

Earlier in the week, Quinn had considered pushing a 5-cent tax on plastic grocery bags, which could have raised $100 million, and enacting a 5-cent per bottle tax on bottled drinks, which could have generated as much as $80 million.

But Vaught said the administration has backed off of those hot-button proposals, which he said were included in a “draft” his office had circulated earlier among legislative staffs.

Quinn remains committed to a 1 percent increase in the state income tax for education, though prospects of passing the tax increase seem dim at best.

Last week, a key legislative source estimated that the $2.8 billion tax increase had only about 45 votes in the House, where 60 votes are needed.

House Republicans oppose Quinn’s income-tax plan, raising the possibility that House Speaker Michael Madigan (D-Chicago) would give the governor a vote on his tax but then pass a partially funded state budget once the income-tax plan failed.

That would get lawmakers out of Springfield by early May, which increasingly is regarded as an earlier-than-usual legislative adjournment target.

An army of union-backed protesters is expected to converge on the state Capitol today to push for the Quinn income-tax increase.