State & Local Tax Blog

ITunes (and Other Downloaded Software) May Soon be Taxable in CA

California is facing a huge budget deficit. That means they are going to cut spending and balance the budget right? Of course not. They are seeking more revenue. One thing that makes California different from most states is that they do not define software as tangible personal property.

A compact disk is tangible personal property. Software you buy on a tangible medium like a CD is taxable in CA. If you just download software and get no tangible media along with it, then the purchase is not taxable. Most people don’t buy lots of software routinely, so you would not expect the general population to protest much if corporations have to pay tax on software downloaded electronically. But there is something that the general citizenry does buy and download a lot and that they will care about. That is a song from ITunes. Yes, that’s also “software” and it’s electronically downloaded. If CA passes a bill recently proposed, then Itunes would cost $1.08 instead of $.99. This could generate quite a backlash. Check out this article in the Mercury News.

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