Video Downloads Exempt?

It would seem that online junkies get all the breaks. Music fans are able to find thousands of free MP3 audio files (in spite of Napster's demise), and promo clips for new films are increasingly released first online and then in theaters. And then there are the illicit copies of new films available for download (see previous story). Video fans can now add tax breaks to the list of Internet perks.

A proposed bill in the House of Representatives, called the Jurisdictional Certainty Over Digital Commerce Act, would exempt movies and other entertainment products downloaded from the Internet from state sales taxes and other forms of state and local regulation. The result, if the bill is passed, would be to create differing taxation policies for downloadable versus DVD and VHS copies of films.

The bill hopes to make clear the jurisdiction of the federal government to set interstate commerce regulations, which increasingly includes the sale of goods over the Internet. The Florida Congressman who introduced the bill, Cliff Stearns, explains that "having 50-plus separate, and at times incongruent, regulations governing interstate commercial transactions poses a substantial burden to interstate commerce in general, and to e-commerce specifically."

According to the bill's text, "While other types of transactions may deserve similar treatment, digital commercial transactions in digital goods are the type of transactions that most clearly deserve protection from disparate, uncoordinated, and inconsistent efforts by the states to regulate interstate commerce."

The bill, which might eventually put brick and morter video retailers at a disadvantage when it comes to the lower costs of tax-free transactions, will probably see opposition from the Video Software Dealers Association (VSDA). The trade group's Sean Bersell says that "it's too early to know whether this legislation is going anywhere, but it's something we will want to keep an eye on."