Music: Downloads Taxable in 15 States

April 13, 2006 -- -- This year Apple celebrated the one billionth music download from its industry-dominant iTunes online music store.

The service allows audiophiles to pick from thousands of individual songs and albums for 99 cents a song -- tax free, right?

Not so fast. In 15 states plus Washington, D.C., those iTunes' downloads are taxable.

Come Tax Day, filers are supposed to claim them under something called a use tax, which is applied to out-of-state purchases.

Tax collectors haven't bothered enforcing the use tax because, until recently, digital sales were just a sliver of the real sales made in record stores.

But in 2005, online music downloads generated about $1 billion, and states are looking for ways to increase revenue by taxing services like iTunes.