Buying Things

Today’s hump-day lunchtime news chum brings together a collection of articles related to purchasing various things:

  • Digital Music. Over the weekend, a rumor went viral about Bruce Willis suing to leave his iTunes collection to his kids in his will. Although the actual incident is untrue, it has raised the question about what it means to own (and bequeath) a digital music file today. In the “old days”, music was captured on physical objects — sheet music, LPs, cassettes, 8-tracks, CDs — and was easy to pass on. Today, music is digital. There is no guarantee the music will be readable; even if it is, often the music isn’t owned by leased. Yes, leased. When you purchase a track on iTunes, you are commonly purchasing a lease to just you, and you can’t pass it on (this is true for DRM-protected music). This is the main reason why I still purchase CDs — and if I purchase digital, I purchase from Amazon or CD Baby as opposed to iTunes. They sell DRM-free music, and I keep copies of the music in multiple places.
  • Used Textbooks. The issue of passing on something that is used isn’t exclusive to music. It’s proving to be a problem with digital books as well. The Chronicle of Higher Education has a nice piece on textbook pricing: specifically, the issue of access codes for online content associated with a text. Professors are requiring those more and more, and those are exclusive to a single student. This means that only new copies of texts can be purchased (for they are often bundled with the code), and texts cannot be shared (because there is one code per student). Digital does not always mean cheaper.
  • Restaurant Pricing. LA Biz Observed has an interesting report on an NY Times article on variable pricing for restaurants. Variable pricing is charging different prices based on demand. Economists love this. This is often found in hotels and vacations, sometimes in sporting events and theatre. The notion is to lower prices when demand is low in order to increase demand, and to raise prices at peak demand times. The NY Times article reported on some restaurants that are trying this: prices are lower when business is slow, and higher during peak hours. How would you react to this? Would you change your eating times to save money?
  • Avoiding the TaxMan. According to the LA Times, spending at Amazon by Californians has increased recently. The reason: Amazon starts collecting California sales tax on 9/15 (Of course, this ignores the fact that use tax is still owed, and use tax laws are being enforced, so there really is no savings). I never think about the tax when purchasing from Amazon — I focus more on the total price including shipping and stuff. So is the upcoming tax enforcement date influencing your purchase schedule with Amazon? (and an odd question: If you just “lease” digital music, do you owe tax on it? Probably)



10 Replies to “Buying Things”

  1. There should be no tax on music downloads. Sales tax only applies to tangible physical items, so data transmitted through the Internet is not taxable. I haven’t heard of the Legislature closing that loophole, but I’ve been expecting it for years.

  2. Hmmm. So does that mean if you by DRM-protected music is it tax free, but unprotected MP3s or M4As it is taxed? Somehow I doubt the retailers will enforce that fine a distinction, and will tax everything.

    1. The California Revenue and Taxation Code makes no distinction between a DRM and non-DRM music file. If either one is burned to a CD and shipped to California, it’s taxable. If the very same files are downloaded from the Internet in California, it’s not taxable. It’s a tricky distinction, but there is a certain logic to it: If it’s a piece of personal property you can hold in your hand (or stand or sit on), it’s taxable. If it’s not physically tangible (like data), it’s not taxable. The obvious, if inevitably extremely unpopular, solution is to make any transaction taxable.

      But you’re right that vendors may have trouble with that distinction. I once ordered a software upgrade to my monitor calibrator from the manufacturer in New Jersey. It was purely a download from their Web site, but they charged me California sales tax. When I talked to a supervisor and explained that they got the California law wrong, they issued a refund. It’s perhaps understandable that a company in New Jersey might not be fully familiar with the complex tax code of a state on the other side of the country. But it’s not acceptable either.

      That is an inherent problem with making vendors collect out of state sales tax. Amazon has the resources to manage all the requirements properly, but smaller vendors may not. For example, I sell my photographs from my Web site. I don’t make a lot of money from it, nor do I really intend to. But if every time I sold a picture I had to collect sales tax and complete the appropriate paperwork for that customer’s state, city, or mosquito abatement district, there is no way I could afford to continue selling pictures. If I had to include the cost of researching and complying with sales tax requirements in the price of a print (and remember, I might sell only one print to someone in a particular state), that price would have to be absurdly high.

      It’s no problem for Amazon or a similarly large corporation. But the burden of compliance with 51 different sets of complex laws and regulations would put individuals out of business. I doubt the legislators intent on stopping the Amazon revenue hemorrhage even considered that effect.

  3. I’ve been following this debate since the 90s.
    1. Downloaded music is licensed, not leased.
    2. Yes, courts have ruled that the Doctrine of First Sale–that law that gives you the right to give/sell your tangible books/CDs without owing anything to the rights owners of those works–does not apply to digital possessions. I think this is slightly bullshit, but I do grudgingly agree that a digital copy is not the same as a physical copy. I *do* think consumers are getting shafted, in that we seem to be paying the same amount of money for fewer rights, and there’s no recognition of that in this debate.
    3. Copyright is designed to eventually release works into the public domain. DRM is designed to protect it in perpetuity. Rights owners squirm like eels when you corner them on this.

    With respect to the Amazon thing,
    1. It’s about time. What was appropriate to protect the fledgling online commerce industry in 1996 is not appropriate today. The state is owed the money. Declaring use tax on our state income tax returns is bullshit. Amazon needs to collect the money.
    2. Rather than itemizing out the tax on the checkout sheet, why doesn’t Amazon silently roll it into the purchase price for customers with a California shipping address?

    1. So if downloaded music is licensed, does this mean we can’t distribute a non-DRM protected MP3? If so, how is that enforced (I can see enforcement for the DRM protected stuff, but if I can just copy an MP3, isn’t it just up to my ethics?)

      Secondly, if downloaded music is licensed, why do we pay *sales* tax? It isn’t being sold, unless we are paying tax on the license itself?

    2. The whole concept of copyright has been turned upside down with the rise of the corporate media conglomerate.

      As you note, the constitution gave Congress the power to grant copyrights with the intent of fostering creativity for the public domain. Copyright gave creators the incentive of a limited monopoly enforced by federal courts, but the ultimate purpose was that the works would enter the public domain to benefit everyone.

      In the view of corporate media conglomerates, copyright is a perpetual monopoly for the benefit of their shareholders. What most people don’t consider is that a copyright may be more valuable if the work is out of print or otherwise unavailable to anyone. The conglomerates “create shareholder value” by periodically merging, spinning off, or selling their catalogues. The copyrights on otherwise unproductive works are assets that contribute to the value of those transactions, and thus to the “value” those transactions create for the executives and shareholders involved. That’s probably the most important motivation for buying copyright extensions from Congress. The public domain becomes irrelevant because there’s nobody to make the campaign donations that entitle its representatives to participate in the process.

      The consumer is indeed getting screwed. DRM is merely one aspect of that screwing. Time-Warner and Disney are working toward the day when all content is available only in their “Cloud.” The consumer would have no possession of any music or other content, but would pay for a license to download it every time they want to read, listen, or watch. That’s what they’ll buy from Congress when the next copyright extension comes up in 2019. And I suspect that even “strict constructionists” like Antonin Scalia would give the green light to such an extension, as increasing the wealth and control of corporations takes precedence even over the clear intent of the Framers.

      Of course, the media demise of the public domain will screw the media conglomerates as well. Disney took full advantage of the public domain to create their versions of Cinderella, Snow White, and Pinocchio. If these fairy tales were the property of Time-Warner, I doubt they’d be able to license any of them.

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