So are we going to be taxed on our digital downloads?  It ain’t over until the fat lady sings.  And with the discovery of new information in Tennessee, it doesn’t like she has sung.

My music download today is from the Eagles:

You can’t hide your lyin’ eyes 
And your smile is a thin disguise 
I thought by now you’d realize 
There ain’t no way to hide your lyin eyes 

In the dust-up over the new ringtone & iPod tax coming down the pike, Revenue Commissioner Reagan Farr stepped onto the scene and flashed some Apple iPod receipts that showed that Tennesseans were already paying taxes on their music downloads.

I hate to be the bearer of bad news, but I must tell Tom Humphrey and John Rodgers, two very fine Tennessee reporters, that they’ve been had.  And it looks like they’ve really, really been had by the confidence trick of the year.

This girl felt uneasy as Farr said folks were already being taxed, we really do just need a technical correction.  As I said in my last post, trust but verify.  If we’re already collecting, why the need to change the status of a digital product delivered electronically via the internet for example, to a tangible product?  As it turns out, Farr wants to change the legal status in order to legally collect the tax!

In the verification process, I’ve discovered a ruling that for some reason is not posted with all other rulings on the Tennesseee Department of Revenue’s website.  Why is it hidden?  Why does one have to wade through hell and high water to find the truth?

As revealed in Letter Ruling No. 08-25 issued March 12, 2008, a ruling that is being kept under wraps from the public eye, all song downloads or background music downloaded or accessed via the internet are not subject to the sales and use tax because they are delivered electronically.

If you go to Wally World and buy music on a CD, it’s taxed.  You can hold that tangible CD in your music-loving hands.  Buy a device, an ipod or MP3 player for example,  that may or may not have tunes already installed, then you must pay sales tax at the point of purchase.  You’re holding that tangible little device in your little fingers.

But download a ringtone or a song via the internet, you ARE NOT SUPPOSED to pay tax.  According to the ruling referenced above, such goods delivered electronically are not taxable by Tennessee statute according to Tennessee Code as sales of telecommunications services or sales of tangible personal property.

So why am I paying a tax on my iPOD for my iTunes?  Sometimes companies like Apple collect the tax when a question exists.  They’d rather err on the side of safe, so they collect the tax until they hear otherwise.

So does Commissioner Farr know he shouldn’t be collecting the tax?  Is he using Apple’s safe-bet of collecting taxes until a ruling comes down the pike as a way to actually institute tax policy within the Revenue Department?  

It’s looking that way.  I hate to say that.  Really, I do.  But I’m looking at the date of this ruling, March 12, 2008.  And then I look at the last words appearing on the ruling and they say “APPROVED: Reagan Farr.”  And then I look at the Tom Humphrey article dated April 25.  Nearly six weeks passed  between the ruling and the interview.  By the time of the interview, Farr has to know Tennesseans SHOULD NOT be paying the tax!

But he doesn’t say that.  In a post by A.C. Kleinheider over at Nashville Post, Reagan Farr makes the claim that according to TCA, “Downloads are considered tangible personal property by the State. According to Farr, under Tennessee code an ITunes song is considered “pre-written computer sofware” [T.C.A. §§ 67-1-102 (60)] that then “performs the task“[T.C.A. §§ 67-1-102 (17)] of playing on your iPod. It is thus taxable under Tennessee law.”

But I’m not seeing that in the ruling that Mr. Farr approved on March 12, 2008. The ruling specifically says: “However, the Additional Song Dowloads and [DATABASE III] services, in addition to any charges for [PACKAGES ONE],[PACKAGE TWO], [PACkAGES THREE], and Background Music service, that relate to additonal songs downloaded onto the hard drive or accessed via the Internet are not subject to the sales and use tax because the music is delivered electronically, which is not taxable as sales of telecommunications services under TCA 67-6-102(81)(B)(ix)(Supp.2007) or as sales of tangible personal property under Tenn. Code. Ann 67-6-102(80)(Supp. 2007).”

Attention legislators: You DO NOT need to approve this change as a technical correction.  Attention legislators: You will be instituting a NEW TAX if you approve the change!!

You also need to ask why the Revenue Department is keeping this information hidden from the public eye.  And why Tennesseans have been lied to. And why Apple has not been informed that they shouldn’t be collecting the tax.  

 And as it turns out, it looks like the law firm that first issued a memo was actually right.

In his day, Soapy Smith was king of what’s known as the short “con.”

Revenue Commissioner Reagan Farr’s digital download tax:  Honest mistake?  Or Confidence Trick?

It’s not looking good.  But giving Farr the benefit of the doubt,  I’m willing to be open and hear his explanation.

From reading the ruling, it all looks pretty clear to me.

Here are the pages from the ruling:

UPDATE: BILL HOBBS HAS MORE.  Rick Forman has a great point in the comments section at Bill’s site. 

AC has more too at the link in the comments section.  AC is doing great work on the subject.  

Representative Stacey Campfield has some summary comments.