Downloading music? Streaming shows? You might soon have to pay sales tax on that. | Nevada Current

Downloading music? Streaming shows? You might soon have to pay sales tax on that. | Nevada Current

(Photo by Brett Jordan on Unsplash)

As Nevadans have transitioned from physical copies of music, movies and books to digital versions, some things have been left behind.

Blockbuster video rental stores, for example.

And sales tax.

Nevada’s sales tax is applicable only to tangible products — the physical CDs, DVDs, books, video games and software being sold. Digital copies of those things (like those you might purchase through iTunes or SoundCloud) aren’t addressed in the state’s sales tax language, which was written decades before such products existed. Also not addressed within existing tax laws are digital streaming services like Netflix and Hulu. Analysts estimate that hundreds of millions of dollars in digital products like these are bought annually and not subject to sales tax, which is the state’s largest revenue source.

Senate Bill 346, which received its first committee hearing Tuesday and will be discussed again in a work session Thursday, would create a digital goods tax that mirrors the existing sales tax. It would place those digital products whose form has changed with new technology back into the tax base. The tax would also apply to subscription services that provide temporary access to media.

State Sen. Dina Neal (D-North Las Vegas) holds up a physical copy of a Wii Fit game during a committee hearing on her proposed digital goods tax.

The bill’s sponsor, state Sen. Dina Neal told her fellow lawmakers on the Senate Revenue and Economic Development Committee that the bill “walks us into the future.” Neal chairs that committee.

Neal illustrated her point by holding up a series of music records, VHS tapes and a cassette player.

In 2002, American consumers spent more than $32.5 billion on physical audio and visual products, according to the U.S. Department of Commerce. In 2020, that number was closer to $17.5 billion. During that same time period, spending on streaming services rose from approximately $7.5 billion to more than $37.5 billion.

Using available federal data and studies on the prevalence of downloaded content, state fiscal analysts have estimated the proposed digital goods tax would bring $8 million to $9 million annually to Nevada’s general fund.

Counties would also receive their portion of the overall sales tax. Fiscal analysts did not compile a county-by-county breakdown but estimated the combined total for new state and county revenue to be approximately $35 million annually.

Lawmakers and retail industry representatives in Nevada and across the country have been working for years to address the taxing of digital products. In 2019, then-Assemblywoman Neal led a digital products tax bill. The bill did not make it out of the assembly committee where it originated.

But the 2019 Legislature did pass a bill to require the collection of sales tax by online “marketplace facilitators” like Amazon or Ebay, which sell products online. That bill, which was prompted by a Supreme Court decision, similarly nodded to outdated tax language. It brought uncaptured revenue to the state, and fiscal analysts have said it softened the blow of the pandemic shutdowns last year.

Progressive groups and education advocates are supporting this year’s digital products bill, arguing the state needs to expand its tax base in numerous ways. Education groups are specifically pointing to the K-12 funding formula, which is undergoing a massive overhaul that advocates warn would be complicated by a lack of additional revenue to support the changes.

Sales tax hikes — like the Clark County Education Association proposal seemingly destined for next year’s general election ballot — have largely been criticized for being regressive in nature. Poor people pay a higher percentage of their overall income to sales tax than rich people.

But the proposed digital products tax isn’t being viewed by revenue advocates as a new sales tax. Rather, they say it’s a recapturing of products that should already be subject to sales tax.

Bryan Wachter of the Retail Association of Nevada argued the state’s existing tax structure unfairly disadvantages people who buy physical products instead of digital ones. Those customers, he added, are more likely to be from low-income households that lack the technology or data requirements needed for purchasing digital products.

RAN is supporting the bill, saying it will end the continuing erosion of the taxable sales base and bring tax parity to products that have both physical and digital forms.

“Nevada has made great strides in updating our current sales and use tax act,” said Wachter. “It was originally designed in 1955. It’s older than the previous education funding formula that was recently changed last session. That’s what funds the state, a 1955 sales and use tax law.”

Several lobbying groups representing counties also expressed support for the bill.

SB346 has received no formal opposition. Because the proposed bill raises taxes, it must be passed by a two-thirds majority in both houses of the Legislature.

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