Information as Product

by Rob Flickenger

I tried Apple's music sharing service on the day it came out. I bought
a single $0.99 music track, just to see how it worked. Of course, it
worked flawlessly, giving me endless possibilities for spending huge
amounts of cash. I was taken aback a day later when I got the receipt
for my downloaded track. That $0.99 track actually cost $1.09. Why the 10 cent increase? Sales tax, of course.


I had to ask myself, where is the "product" to be taxed in a downloaded "file"? To me, downloading data is more akin to performance art than the transfer of physical products.


What is data, really? Data is an idea, an abstraction, a particular collection of positive and negative assertions encoded on a spinning magnetic platter, later interpreted by the end user in a manner that they find pleasing. Tax on this apparatus was duly paid when it was purchased, and tax on the connection to the telecommunications infrastructure is paid every month.


Interestingly enough (in the case of my downloaded music track) I didn't even get my copy from Apple. Technically I got my "copy" from my upstream router when it started wiggling bits on the other
end of my DSL line. To tax one "copy" of this data over another is ridiculous, as not only should I be taxed, but so should every machine between me and the server I "downloaded" it from. If data were a product, it would most logically be my ISP who should have to pay sales tax on items I download, just as manufacturers and distributors don't pay sales tax, but stores do.


This analogy sounds ridiculous because data isn't a physical product. It doesn't behave like physical products, and only exists as a particular arrangement of switches. To me, data actively transmitted over a network is free speech in its purest form, where good neighbors agree to relay information between them for the benefit of the entire network. Where is the "product" in this global game of whisper-down-the-lane?


I'm picking on taxes because they most clearly illustrate the
conclusion I've arrived at: that considering data as a "product" is
possibly the most mundane way of interpreting what happens when people exchange information, and as such, will attract tax men, middle men, and other clingers-on.


As a result, I've decided to release all of the work I've done so far under the Creative Commons license. My software is already freely available; I would like the rest of my meager effort here on planet Earth to be freely available as well. Details will be forthcoming once I work them out with my publisher.


All in all, I think this planet could use more people actually producing good data, and fewer people bickering over it...

Should digital data be considered something new, or should it be subject to the same rules as the stuff you find in stores?


7 Comments

sklar
2003-06-17 15:48:10
Taxes on non-physical things
I am confused as to why this particular tax on this particular non-physical object seems so particularly upsetting.


Other taxes on non-physical things: income tax, Medicare tax, Social Security tax, Worker's Compensation Insurance tax/premium, capital gains tax, New York City Unincorporated Business Tax, etc. etc. etc.


When I rent a car, I pay taxes on the rental fee. I don't get any physical product that I own, I just used a service for a little while.


My monthly phone bill consists of about $9 of charges for service and about $11 or $12 of taxes and fees (including sales tax). There is no physical object I receive each month in exchange for the amount that the tax is calculated on. The wires and switches and phone network is there whether I make a call (or even have a phone line) or not.


The reductionist argument that data is just magnetic blips so therefore data can't be taxed/regulated/etc. is philosophically interesting but practically (and pragmatically) useless. Just like the data is useless without the delivery infrastructure and the software and hardware that turns it into a song.


Some swirling magnets that produce some flickering charges produce "data" that is physically identical to the digital representation of a song, but those flickering charges aren't worth any money. But those charges organized into a format that routers can deliver to your computer which can then take that data and make your speakers vibrate ("vibrations are just motion, can that really be taxed?") in a way to make some air vibrate ("how can we tax air?!") so that your eardrums vibrate ("they're my eardrums and I'll make them wiggle however I want, that can't be taxable!") so that your nerves make some neurons fire ("surely intracranial chemical reactions aren't taxable!") so that you ("what is the self, really?") think you're listening to a song -- that's not "just data".


The combination of all of those elements, from magnet to neuron, transcends a reduction to one of its seemingly untaxable components. That's what you're buying and what you're paying tax on.

rflicken
2003-06-17 16:28:54
Taxes on non-physical things
> Other taxes on non-physical things: income tax,
> Medicare tax, Social Security tax, Worker's Compensation
> Insurance tax/premium, capital gains tax, New York City
> Unincorporated Business Tax, etc. etc. etc.


This is certainly true. Taxes exist on the books for virtually everything we do. But I was specifically charged "sales tax" on my music track. Not a service tax, not a distribution tax, but a sales tax. I'm certainly not a lawyer, but I had been led to believe that salex tax applies to non-essential goods (i.e. anything but raw food) but specifically not to services.


That said, I expect an "Internet download tax" any moment now...


> The reductionist argument that data is just magnetic
> blips so therefore data can't be taxed/regulated/etc. is
> philosophically interesting but practically (and
> pragmatically) useless. Just like the data is useless
> without the delivery infrastructure and the software and
> hardware that turns it into a song.


Delivery infrastructure (already taxed) and software (already taxed) and hardware (already taxed) put together to form a service that is taxed as a product? I still just don't see it. At any rate, I have no doubt that new taxes will quickly appear to cover any holes that might exist already.


I'd go further to speculate that trying to sell bits online is a bit like trying to build a castle on a marsh. Sure the third one might remain standing, but would you want to live in it? I think we'd all be better off finding a better way than trying to wedge yet another a silly short term business model onto the Internet.


We've all got to decide for ourselves, but the online world I want to live in includes open collaboration at the expense of taxation and ridiculously arbitrary licensing. I hope that giving away the bits I put in order will help encourage others to do the same.

anonymous2
2003-06-17 17:04:44
Maybe a tax on the licence?
As we all know now-a-days, when you buy an physical-album at a physical-store you are purchasing a limited usage licence and a piece of storage media. I haven't gone to a physical-store and bought a physical-album of music in a long time, but I'm pretty certain that they charged me tax on it. As far as IMS goes, you are getting a limited usage licence and not getting a piece of storage media, so the tax liability wouldn't be different.
sklar
2003-06-17 19:20:08
Taxes on non-physical things
> We've all got to decide for ourselves, but the
> online world I want to live in includes open
> collaboration at the expense of taxation and
> ridiculously arbitrary licensing. I hope that
> giving away the bits I put in order will help
> encourage others to do the same.


And those entropy-fighting bits, since they're given away, won't incur any taxes for anyone. (Except, as you noted above, the taxes that are already paid on the software and hardware infrastructure required to put the bits in order in the first place and later convert them back into some human-compatible sensory experience.


But if you sell those bits, then there are perhaps taxes involved. I don't think it makes sense to give away all the digital content one creates, just as I don't think it makes sense to charge for it all. But as you aptly point out, this is something "we've all got to decide for ourselves."


Whether you think it's viable to charge for digital content (how-to ebook, song) or that the bits are good free advertisements for time-billed services (ccmputer consulting, concert), that decision is completely separate from whether it's reasonable for there to be a tax on the sale of that content.


Maybe it's misleading to call it a "sales tax" when the thingy being sold isn't as solid as a bar of soap or a physical book, but it's not a "silly short term business model" being "wedged" anywhere. For better or for worse, the Internet isn't some 21st century playground devoid of the rules that keep society going. Someone's got to pick up the garbage, sweep the streets, and turn the lights out at night.

rflicken
2003-06-17 19:32:36
Taxes on non-physical things
Well said.


> For better or for worse, the Internet isn't some 21st
> century playground devoid of the rules that keep society
> going. Someone's got to pick up the garbage, sweep the
> streets, and turn the lights out at night.


It's true. In the end, Internet bits aren't free. I just hope that networks are made up more of people who want to participate than people who want a free ride. The inevitability of hard wired lines needing public right of way will always lead to politics, and people who don't understand or contribute to the technology wanting to profit from it.


I highly recommend checking out the efforts of FreeNetworks.org for one possible alternative. While the Internet might not be as "free" as it once was, I don't think this necessarily sets precedent for preventing people from building their own free networks.

anonymous2
2003-08-29 11:16:16
digital data can be property
If digital data is an embodiment of a creation that is unique and it's uniqueness is of value to others, it's creator should have the same right to profit from it as the writer of a book or a composer of music. Indeed digital data may embody either of these and many other things. That it exists in a form of digital data that can now be communicated with ease anywhere, does not change it's value or uniqueness, not its creator's property rights. It does make enforcement more difficult, and leads many to rationalize why they should get it for free. Theft of the created property of another is still theft, no matter how easily it may be done.
rflicken
2003-08-29 11:56:52
digital data can be property (but it's a poor choice of investment for the "owner")
I certainly don't deny the value of digital data. In many ways, I find it preferable to more traditional methods of data storage (eg. photographs, albums and CDs, and occasionally books, particularly reference books).


But to argue that uniqueness is value and enforce it at gunpoint is as useless as money by fiat. Value is a slippery proposition, and moreso when talking about property that has no physical component.


I suppose this is one basic disagreement between us: I don't think anyone has a "right" to profit. If you're talking about money, you're really talking about running a business. You can expect anything you like, but it doesn't change the fact that bits are easy to "copy", and in fact only exist when using someone else's "property" as a medium. I think it's terribly presumptuous for someone to expect to profit from a resource that they can't directly control. Passing laws to make it so only perverts the idea of value even more.


If you want to make money (that is, receive royalties) on creative work that you've done, pick a different medium. If you want fast and wide distribution and ease of retrieval, go digital. You can't have both without dangerous laws that threaten one over the other.