Songs, books downloaded online to be taxed in Ohio

COLUMBUS, Ohio (AP) -- Downloading the latest pop music hit or best-selling crime novel could cost more next year in Ohio.

A package of tax changes added to the state budget would increase the state sales tax and apply it to digital products, such as MP3s, e-books and videos bought on the Internet.

If approved by the Legislature on Thursday, tablet readers and music listeners would find a 5.75 percent state sales tax tacked on to their downloaded items on Jan. 1. That's a slight boost from the current rate of 5.5 percent.

Republican Gov. John Kasich told reporters Wednesday that he believed the tax was fair, noting that he frequently downloads books online.

"Look, if you go down the street and you visit a store here and you buy a Kanye West CD, you pay taxes on it," he said. "If you download it, you don't."

"I think it's entirely appropriate to balance all this out," Kasich added.

Local taxes also would be applied in tandem to the digital items. That means buyers could see a 7 percent tax in parts of central Ohio, compared with an 8 percent rate in Cuyahoga County and a 6.75 percent tax in Hamilton County.

Under current law, states can only require stores to collect sales taxes if the store has a physical presence in the state. As a result, many online sales are essentially tax-free, giving Internet retailers an advantage over brick-and-mortar stores. Though Ohio law requires consumers to pay a use tax if the items they buy online aren't taxed by the seller.

Larger retailers with stores all over the country like Wal-Mart, Best Buy and Target collect sales taxes when they sell goods over the Internet. But online retailers like Amazon don't have to collect sales taxes, except in states where they have offices or distribution centers.

Majority Republican lawmakers in Ohio contend that because some retailers have sales representatives in the state or sell products with ads targeting Ohioans, the businesses have "nexus" in Ohio and could have the sales tax can be applied to their items.

Under Ohio's tax proposal, the sales tax wouldn't apply to any video programming that's included in a cable service package. But viewers could expect their Netflix and Hulu Plus subscriptions to be taxed.

The Ohio Department of Taxation estimates that the state would see an additional $15 million in the next two budget years by applying the sales tax to digital products.

The tax package would also eliminate a sales tax exemption for magazine subscriptions beginning Sept. 1, a change that's drawn heat from some publishers.

John Dunn, the publisher of Cincinnati Magazine, recently told legislators on an Ohio House committee that it would feel wrong to pass along the tax to his 316,000 readers.

"We all know how it feels when gas prices rise and fall 20 to 40 cents within a three-day time period," he said in testimony. "This is no different."

Absorbing the tax could mean layoffs at the magazine, Dunn added.

Roughly half of the states in the country apply a sales tax to magazine subscriptions, said Brad Weltman, of the Magazine Publishers of America.

Weltman told the House committee that the sales tax on subscriptions has created legal challenges and policy disagreements in other states.

Plus, he said, a challenging economy has forced many magazines to drive down their subscription prices. "Low promotional pricing would yield little in sales tax revenue," he testified.

Getting rid of the sales tax exemption for magazine subscriptions would bring in $11 million annually to Ohio, according to the state taxation department. The tax change would apply most major magazines, not just those who have offices in Ohio.

Republican leaders see the move as "equalizing" how the sales tax is applied. Hard copies of albums, books or magazines from the newsstand are already taxed, while their online counterparts are not.

"That's a loophole. There is no difference," said Senate President Keith Faber, when he announced the tax package last week.

State lawmakers face a Sunday deadline to pass the budget. A new fiscal year begins Monday.

Carl Jacobsma, co-owner of the Book Loft in downtown Columbus, said adding the tax is a step toward evening the playing field between online retailers and smaller operations such as his store.

He said his shop does can't offer the same deals as Internet retailers, particularly those that don't have the cost of maintaining a store.

"It's a move in the right direction, but it's going to be a small move," he said.