I'm in ur iPod taxing ur downloads!

Talk about elevating snipe hunting to a new level, the idea that state department of revenue border agents might shift focus away from the plague of phantom cartons of cigarettes to tracking who downloaded Mariah Carey's latest hit is asinine. (via Jeff Woods at PITW)

"A preliminary draft includes proposed changes with significant potential impact on businesses in Tennessee," an email from the lobbyists at Waller Lansden warns. The most controversial proposal doesn't only impact businesses. It would tax the songs on your iPod.

The Republican Party is already on the case. "Most states do not tax digitally-delivered products," state GOP flack Bill Hobbs says. "Tennessee shouldn’t either and state government's current fiscal crisis should not be used by the Bredesen administration as an excuse to hit the people of Tennessee with a new tax that could cost them tens or even hundreds of millions of dollars."

UPDATE 11:48am - Lizzie Keiper reminded me on Twitter to check out my last iTunes receipt to see that Apple is already taxing my downloads. I went there, and sure enough I am being taxed. Apple claims that tax is based on my billing address which suggests they are remitting it to the state of Tennessee. But are they? If so, how much has Tennessee collected? If not, what is Apple doing with that money?

iTunes Store transactions will include sales tax based on the bill-to address and the sales tax rate in effect at the time your transaction is completed. If the sales tax rate for the billing address changes before the purchased or rented (as applicable) digital content is downloaded, the new tax rate in effect at the time of download will apply. We will only charge tax in states where digital goods are taxable. No customers are eligible for tax exemptions for transactions made on the iTunes Store.

UPDATE 1:07pm - Note the part I underlined. According to Nashville's Waller Lansden law firm, "under current law digitally delivered goods are not taxable unless delivered in a tangible form."

UPDATE 2:42pm - Tennessee Department of Revenue Commissioner Reagan Farr confirmed to NIT that Tennessee has been collecting sales taxes on downloaded music for your iPod since Jan. 1, 2008. If you check your iTunes receipts you'll notice that's when Apple's iTunes began applying TN sales taxes on all your purchased downloads through iTunes. Farr said the state is using a confusing definition in the state's sales tax code to begin collecting the sales taxes on downloaded media.

Farr said Governor Bredesen's proposed technical corrections to the state's 2008-2009 budget attempts to clarify the sales tax code language allowing sales taxes on downloaded music using definitions that were adopted in other states.

Tennessee Republican Party spokesman Bill Hobbs claimed today Gov. Bredesen's proposed technical correction creates "a wholly new tax" on your downloaded music.

UPDATE 4:46pm - OK, OK. Since iTunes is the one applying the sales tax, I guess it isn't so "asinine" since Apple is doing all the work, not border agents scanning the skies for your digital downloads. One note of interest: Farr also told me you Tennesseans are also being taxes for our on demand media purchases through Comcast.

UPDATE 4:55pm - Below is a statement from the Tennessee Department of Revenue on this issue.

It is important to note that sales tax is already collected on sales of digital equivalents of books, music and movies. The department's proposed technical correction bill will not affect the way these items are currently taxed.

The proposed language updates Tennessee's sales tax law by specifically defining digital equivalents of books, movies and music. As digital sales continue to increase, the need for clear language that defines what is taxable and what is exempt is needed for accurate sales tax collection.

Digital equivalents are currently taxed as prewritten computer software, effective Jan. 1, 2008. Previous confusion about the current taxability of digital equivalents highlighted the need to modernized Tennessee's sales tax definitions to more accurately reflect the present day reality of digital music, books and movies. The department's goal is to create understandable, effective tax policy by adopting uniform definitions that are easy to understand and explicitly define what is taxable and what is exempt.