Administration’s “Technical Corrections” bill would tax music downloads, free hotel breakfasts

For Immediate Release: May 13, 2008
For Further Information, Contact:
Drew Johnson , 615.383.6431
drew@tennesseepolicy.org

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Department of Revenue Proposes $30.3 million Tax Increase on Tennesseans
Administration’s “Technical Corrections” bill would tax music downloads, free hotel breakfasts

NASHVILLE – The Tennessee Center for Policy Research condemns an intrusive $30.3 million tax increase proposed Monday by the Tennessee Department of Revenue. The proposal, known as the “technical corrections bill,” taxes gym memberships and complimentary hotel breakfasts, as well as iTunes and other media downloads. Further, the bill recommends a $15 million tax on commercial rents collected by family-owned, non-corporate entities, which were previously untaxed in Tennessee.

“The Department of Revenue claims the technical corrections bill isn’t a tax increase, but that’s ridiculous,” said Tennessee Center for Policy Research President Drew Johnson. “Thirty million dollars won’t fall from the sky, it’ll come out of the pockets of hard working Tennesseans.”

Among the proposed new taxes are:

• A $15 million yearly tax on certain family-owned real estate property.
• A tax on items that hotels provide for guests, including linens, bathroom supplies, drinks, continental breakfast and other food items.
• Stricter taxes for equipment and items purchased by farmers and nurserymen to operate their farms and nurseries.
• A tax on electronically-delivered digital media downloads for iPods and other MP3 players, music videos, motion pictures, ringtones, and electronic books.

The tax increases were proposed by Reagan Farr, the state’s Revenue Commissioner. On March 12 of this year, the Department of Revenue’s own Tax Council, Rachel Wheeler, determined that music downloads are not subject to state sales tax under state law. Commissioner Farr now proposes to tax downloaded music.

“The Commissioner has apparently lost his senses. He obviously believes that Tennesseans are nothing more than ATMs to dispense money for the state government,” Johnson said. “On behalf of all Tennesseans, I encourage that Commissioner Farr keep his hands off our iPods and out of our pockets.”

Governor Phil Bredesen has made personal fitness and physical activity a hallmark of his administration through multi-million dollar campaigns including “Get Fit TN” and “Respect Your Health!” In a surprising twist, the Administration now wants to make it more expensive for Tennesseans to work out by charging sales tax on gym membership dues.

In total, the tax increases are estimated to cost taxpayers more than $173 million over the next five years.