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Dept. of Revenue Says State's Losing Millions from Digital Download Tax Break

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A tax break Iowans enjoy on digitally-delivered goods is under consideration at the statehouse.

The internet was new and we were trying to encourage that

Officials with the Iowa Department of Revenue today briefed a panel of state lawmakers who are charged with reviewing the tax credits that cost the state treasury hundreds of millions of dollars a year.    

DOR economist Amy Harris said Iowans currently do not pay sales tax when they download e-books, movies, or software from the internet.   

“Other states are taxing digitally delivered goods now,” Harris said.   “We estimate for goods purchased from businesses with nexus in in Iowa a tax on digitally-delivered goods  would have increased revenues by $17 million in calendar year 2015.”

The economy has shifted so much

Harris is referring to companies with brick and mortar stores in Iowa, such as Barnes and Noble or Apple.  

If the tax break is eliminated, those companies would collect the tax on downloads to the Nook e-reader or iTunes purchases.     Amazon would not collect the tax on books delivered to the Kindle.

Best Buy or other retailers with what’s referred to as nexus in Iowa would collect the tax on software purchases.

Officials say the tax break made more sense in the early days of digital downloads.

“The internet was new and we were trying to encourage that,”   Harris said.

“It might be an area for the legislature to consider,” said DOR Communications Director Victoria Daniels.   “The economy has shifted so much.”