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Independence Institute: Software Download Tax a Threat to Online Future

By Barry Fagin, PhD
Did you know that computer software, a pattern of electrical impulses that can be duplicated and whisked across the world at the speed of light, is actually tangible property and therefore subject to sales tax? Well, maybe not yet, but it will be in Colorado if House Bill 10-1192 is passed.
For those of us who have dedicated our professional lives to computing, the internet, and information technology, HB 10-1192 is an absolute disaster. It makes fools out of all of us who believe high tech is Colorado’s future, and who want to see our state become a high-tech mecca. How can we possibly do this if our legislature, supposedly representing the will of Coloradans, decides to make businesses collect a tax every time a pattern of electrical impulses is downloaded by a customer?
The ostensible purpose of collecting sales tax on tangible property is to account for the infrastructure and expenses incurred by the state associated with that specific transaction. But the marginal cost to the state of a software download is essentially zero. The infrastructure associated with vendors who sell software includes routers, interconnect, and the physical assets of the business, all of which are already subject to sales tax as actual, tangible property. To classify a stream of bits as tangible is absurd.
But of course bad legislation is all about absurdity. In this case, according to the bill, forty percent of the supposed revenue gained (no mention is made of the revenue lost from Colorado’s software businesses and their customers) is earmarked for public education.
And who can argue with that? After all, public education is like the environment, motherhood, and apple pie: All good people support it, so you can’t be against giving it more money. If you dare suggest that everything, including public education, involves costs and benefits, you must be a bad person. Maybe even a Republican.
At least the authors of the bill are honest and open about their intentions. They want to transfer wealth from Colorado’s software companies and their customers (who are not well organized politically) to the employees of Colorado’s public school system (who most certainly are). Presumably, the former have more money than they should, while the latter don’t have enough. That is, apparently, why this bill includes a “safety clause” claiming that it is “necessary for the immediate preservation of the public peace, health and safety”. Honest, I don’t make this stuff up.
Shifting money around like this is, sadly, the essence of how state governments do business. Use the power of law to take money from those who are too weak to protest, and give it to those who have ready access to the corridors of power. It’s become so
routine that nobody even raises an eyebrow any more. Simply say it’s being done “democratically” and is “in the public interest”, and the debate is over.
Colorado has been inundated with boards, commissions, and panels pontificating about how public education has to change, how information technology is the future, how we need better math and science education, how we need to train our students for the high-paying, high-technology jobs of the future. But what good does it do to fund high-tech training programs and give public education more money if the jobs we are supposedly training students for have long since fled elsewhere?
That is exactly what Colorado is at risk for if the political mentality behind HB 10-1192 triumphs.
Colorado’s online future is on the line.

Dr Barry Fagin is a Senior Fellow in Technology Policy at the Independence Institute. He holds a PhD in Computer Science from the University of California at Berkeley, and is currently a Professor of Computer Science.

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