Downloadable music, movies, e-books and clip art may soon accrue sales tax if Gov. Jim Doyle’s proposal to expand Wisconsin’s taxes to downloadable Internet materials is approved by the state legislature.

Doyle intends to update tax laws with rapidly changing technology by imposing a five percent sales tax on the Internet items. If passed by the legislature, Wisconsin would be only one of two states to have such a tax.

“In the future we may have a much larger percentage of commerce online, and if we don’t update the tax laws now we’ll be faced with … significant cuts in education and the university because our tax laws won’t be up to date with commerce,” Doyle spokesperson Dan Leistikow said.

Leistikow said while no one thinks this is going to balance the budget, it is still important to update Wisconsin tax laws to include all businesses.

Department of Revenue spokesperson Jessica Izerson said the new proposal will “level the competition” between Internet businesses and brick-and-mortar establishments.

“Basically it’s an equity issue,” Izerson said. “[The proposal would] level the playing field between Internet sellers and sellers on the main street who are providing jobs and economic activity for Wisconsin.”

This was never an issue before the Internet was around — but Leistikow said if online companies are not required to pay taxes, local Wisconsin stores could go out of businesses and workers could lose jobs.

Joint Finance Committee member Rep. Scott Jensen, R-Brookfield, who has dubbed Doyle’s proposal the “I-Pod” tax, does not approve of the tax and is surprised the governor included the measure in his budget proposal because he has been trying to sell Wisconsin as a “high-tech haven.”

“This doesn’t make any sense to me — we can’t have [high taxes on downloadable items] and expect to make sales successful in that area,” Jensen said.

Jensen believes the governor should consider the competition Wisconsin businesses have with other states, rather than with Internet-based companies, because businesses will not come to Wisconsin to create electronic commerce if such a proposed tax is set in place.

The non-partisan Legislative Fiscal Bureau has estimated the new tax would cost buyers nearly $3.2 million over the next two years, but Jensen said this is unrealistic due to the lack of regulation and enforcement of the tax.

Individuals would be required to keep track of their digital downloads and report the information when they file taxes each year. The reporting would be based on the honor system, and Jenson doubts many people will keep track of their spending.

Because few people will pay the tax and many may not even know about it, Doyle’s proposal would not create a level playing field, Jenson said.

Izerson said the voluntary compliance is currently difficult to enforce and that unless an Internet seller decides to take an active role in collecting the tax, the playing field between businesses will not be level.

The Joint Finance Committee is holding the first of a series of public hearings across the state regarding Doyle’s budget today, and Jensen said the Republican-controlled committee will not let the “I-Pod” tax survive.