New Jersey legislates tax on iTunes downloads

iTunes logoNew Jersey residents have been hit by their government with a 7% tax on iTunes downloads (as well as other music download services such as Napster) this past week.

The sales tax overall was raised from 6 to 7% in order to help the state fight their $4.5-billion deficit.

Many are speculating that other states will follow New Jersey’s lead and introduce their own sales tax on music and movies downloads.

I guess I don’t really see anything really wrong with this. I have never bought music from iTunes. And there’s really no good reason not to tax it like anything else, other than just not liking taxes in general.

At least the people the Governor is pissing off with this move is bound to be primarily from a demographic that is known for not voting.

[Via taxalicious, via CNET]

Accounting Standards

Pension brouhaha south of the border

FASB is coming out with some tough new standards relating to defined benefit pensions that is expected to result in significant new liabilities (or increases to existing ones) for companies that had been accounting for their pensions under the more lax requirements of the old standard.

Defined benefit pension plans are definitely the more complicated type, compared to defined contribution. I’ve only worked on one pension audit thus far, and it was – luckily for me – a defined contribution. Auditing a defined contribution plan is easier to do because future estimates aren’t necessary. Defined benefit plans require an actuary to perform the highly specialized work.

Anyway, back to the change in the standard. Under the old standard:

Employers reported an asset or liability that almost always differed from the plan’s funded status because previous accounting standards allowed employers to delay recognition of certain changes in plan assets and obligations that affected the costs of providing such benefits.

Pension accounting is one of those things you learn in a 2nd or 3rd year course at university and then pray you don’t have to see frequently in practice, unless you’re a masochist. It’s just so very complicated! I feel lucky that so far the only pension audit I’ve been on has been defined contribution.

Specifically, the new standard requires an employer to:

(a) Recognize in its statement of financial position an asset for a plan’s overfunded status or a liability for a plan’s underfunded status

(b) Measure a plan’s assets and its obligations that determine its funded status as of the end of the employer’s fiscal year (with limited exceptions)

(c) Recognize changes in the funded status of a defined benefit postretirement plan in the year in which the changes occur. Those changes will be reported in comprehensive income of a business entity and in changes in net assets of a not-for-profit organization.

Sounds like they’ve improved things from both the investor viewpoint as well as the employee’s. This new standard brings up the issue of comprehensive income, which is a below-the-line adjustment to net income on the income statement. I believe the Canadian standards body has guidance out relating to it but it may or may not be in effect for year ends just yet.


Love tax theory, hate tax application

Tax is a subject that is near and dear to my heart, but not because I occasionally fill out a tax return. Tax theory is fascinating and relevant stuff, but I won’t ask you to take my word for it.

I think the reason why I like tax theory but hate applying tax law, is because it combines my love of accounting with my love of politics. Taxes are an intensely political subject. And I don’t mean office politics, I mean the good kind.

But the politicization of taxes if often detrimental to constructing a truly successful tax system. Witness the recent Canadian federal election, when the Conservatives won, partly on their promise to reduce the GST by 2%.

The GST is a consumption tax, which is the most efficient type of tax. Instead of cutting the GST, we should be cutting income tax or capital tax. Income tax discourages work, and tax codes across the globe have become convoluted with various tax credits and deductions, increasing compliance costs for everyone.

The US is even worse than Canada, because it doesn’t even have a consumption tax. But Europe is ahead of us with their VAT, which ranges from 18-25%. The GST in Canada is now 6%, with a further reduction to 5% coming. We’re headed in the wrong direction.

I’m convinced we need to do away with income taxes entirely, and replace it with a consumption tax. It would be fairer and would encourage saving and investment. A credit for low income earners could be employed to maintain the progressive nature of most income taxes.

What are we waiting for? Politics, as usual.


NAFTA super highway to accelerate North American trade

I stumbled across this story through digg and it seemed pretty well supported even though it hasn’t been covered in the mainstream media at all yet. The Bush administration appears to be planning for a Mexico-USA-Canada “super corridor” to bypass a couple unions.

The new road will allow containers from the Far East to enter the United States through the Mexican port of Lazaro Cardenas, bypassing the Longshoreman’s Union in the process. The Mexican trucks, without the involvement of the Teamsters Union, will drive on what will be the nation’s most modern highway straight into the heart of America. The Mexican trucks will cross border in FAST lanes, checked only electronically by the new “SENTRI” system. The first customs stop will be a Mexican customs office in Kansas City, their new Smart Port complex, a facility being built for Mexico at a cost of $3 million to the U.S. taxpayers in Kansas City.

The first segment through Texas is ready to be constructed next year! The implication is the creation of a North American Union like the European Union, although it’ll probably end up being more like a natural extension of NAFTA. Less politics, more economics.


Alcatel buying Lucent for $13.5 billion

The French telecom company Alcatel is buying Lucent in what is reported to be a $13.5 billion acquisition made to improve R&D capabilities in both organizations.

Lucent’s CEO, Patricia Russo, doesn’t speak French but will become the new CEO of the Paris-based giant. I wonder how well that’s going to work out. It will be difficult for her to communicate her executive vision to the troops if she can’t speak their language.

Some details:

  • Alcatel will own 60% of the common stock of the combined company.
  • Both companies will have equal representation on the board of directors, with two additional independent directors.
  • Revenues will be approximately $25 billion.

Lucent has some sensitive US government work that will be overseen by an independent subsidiary with three US citizens on its board of directors. The deal still has the potential to become a “political football” much like the Dubai Ports World deal that fell through and when Lenovo bought part of IBM.