PhotoYou're sitting there watching "Orange is the New Black" on your iPad or maybe your LCD screen that's connected to your Roku box. You're happy. Netflix is happy. OTNB is happy. Your Internet provider is happy. Roku is happy. Everybody's happy, right?

Not quite. Down at City Hall, they're not happy at all. Your state's fine Governor isn't happy either and not because he's going to prison (maybe he is, but that's another story).

No, the problem is that the government isn't getting its cut. If you had rented the DVD of the series or bought it outright, the long arm of the state would have gotten its cut -- 6% or so in most places.

The same is true of the Google Cloud and all those other cloud storage services. You don't pay the government to use them. If, on the other hand, you trudged over to Best Buy and bought a 4-TB hard drive for $179, the state would have snatched its $10 before you even knew it was gone.

This is no joke. The government wants your money. It will tell you it needs it for the fire department, the schools, the roads and so forth. That's true, of course, but that doesn't make it any more pleasant.

High stakes

At stake is the $271 billion states collected in sales taxes last year. Not much of that came from virtual products and governments see that as a growing problem, because as more services move into the cloud, sales tax collections shrink, the Wall Street Journal notes in an article today.

Chicago used to call itself the "City that Works" and what it's working on now is a local sales tax on digital goods. The state of Tennessee -- the Volunteer State -- has a whopping, involuntary 7% sales tax and has just extended it to digital items.

The rationale cited by states, besides simply saying they need the money, is that goods that are legally taxable are escaping taxation because of changing technology.

Take those DVDs, for example. States argue that DVDs are taxable so Netflix should be too. Critics say that, yes, a DVD is a tangible product but it is only a way of delivering a TV series, which is basically intangible. Tennessee didn't tax "Gilligan's Island" when it was broadcast back in the 1960s, did it?

There's a saying that all politics is local and the same is true of sales tax. What flies in one spot may crash and burn in another so taxation of digital services is likely to remain a patchwork, but with lots of new 6% and 7% patches sewed on here and there.

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