New York considering digital download tax

New York state is the latest U.S. state discussing a possible tax on digital downloads, as more consumers go online to purchase music.

The so-called "iPod tax" needs to be approved by the legislature, and songs sold through iTunes would earn the state 4 percent — or 4 cents per song.  The cities in New York that charge sales tax on top of state tax, including New York City, would charge users an additional 4 cents to download a music track. 

According to the state, any book, song, music album or movie sold in New York would be subject to sales tax "no matter if it was bought at a brick and mortar store or downloaded online," according to New York’s budget Web site.

Apple CEO Steve Jobs announced at the beginning of 2008 that iTunes has sold more than 4 billion songs since its launch — the appeal of taxing something such as iTunes suddenly becomes understandable from the state’s perspective.

Aside from music, the tax would also add charges for tickets to movies, sporting events, satellite TV, and satellite radio.

The state of New York, led by Gov. David Paterson, now faces a $15.4 billion deficit that lawmakers are unsure how to uncover.  Taxing digital content would give the state $15 million for the 2009-2010 fiscal year, and an estimated $20 million for 2010-2011.

Alabama, Arizona, Colorado, Hawaii, New Mexico, Texas, Washington, and several other states are already taxing digital entertainment, with more states likely to follow suit.