No Thanks for the Memory Tax: Stopping It Before It Gets Started

It may not be long before folks start referring to the proposed levy on electronic memory cards not as a “memory card tax” but simply as a “memory tax”. That’s exactly what it would be. It has been quickly mocked outside of Canada.

A tax on memory is a tax on technology.  Just as Minister James Moore said about the CPCC’s proposed iPod tax, “this idea is really toxic and, frankly, really dumb.”

It makes even less sense than iPod tax because iPods, after all, are actually used for music - whereas memory cards are rarely if ever used for this purpose by most Canadians.

Of course, such a levy has to be certified by the Copyright Board. Unlike an iPod, which is a “device” from which memory cannot be removed and are therefore not subject to the existing legislation, memory cards are arguably a “recording medium” that could be subject to a levy, if the Board finds that they are “ordinarily used by individual consumers” to make private copies of sound recordings.

The case for opposing this “tax” should be readily winnable at the Copyright Board, and/or if necessary in the Federal Court of Appeal - albeit at considerable expense to all concerned.  It may have to go to the Court because the Board has an extremely low threshold for what it considers to be “ordinarily used” and has shown itself to be very sympathetic to CPCC’s attempts to expand the levy to iPods, despite that fact that the Federal Court of Appeal had said and had to indeed say twice that the legislation doesn’t allow such a levy. (I was heavily involved in all of this for the Retail Council of Canada - but this blog, as always, reflects my own views).

The Federal Court of Appeal in 2000 upheld the Copyright Board’s first finding that blank CDs were “ordinarily used” for private copying of sound recordings. However, only about two years later, the Court took the very unusual step of explicitly indicating that its earlier ruling on CDs had been decided on the wrong “standard of review” basis. The case for memory cards is almost certainly going to be even weaker than for CDs  - but it could cost lots of money to establish this at the Copyright Board stage and, if as likely would be necessary,in the Federal Court of Appeal and possibly beyond.

Much as it pains me to potentially work myself and others out of a lucrative Copyright Board and Court proceeding, this matter really should, in the interests of public policy, be stopped before it ever gets that far and I predict that this will be the case, given the obvious disconnect between memory cards and music.

The Government has the clear and explicit authority under the current legislation to enact a regulation specifying that electronic memory cards are a “kind of recording medium” that is to be excluded by the legislation. If Ministers Clement and Moore are reappointed (or like-minded Ministers take their place), quick enactment of such a regulation would be consistent with their decisive and virtually instant rejection via Twitter and more officially on several occasions thereafter  of an “iPod tax”.  A “tax” on memory cards, even if allowable in theory under the current law, would disrupt the markets for cameras, smart phone and other technologies ranging from medical to GPS devices. It would be a huge administrative and financial headache for importers, distributors and retailers of these ubiquitous cards.  A regulation can generally be enacted much more easily and quickly than legislation, if there is political will.

Morever, these cards lend themselves perfectly to cross border shopping - either in person or via the internet. Revenue loss for Canadian distributors and retailers and HST loss for governments would be very significant. One does not have to be too cynical to wonder how many Canadians would forget to “remember” to declare the purchase of these tiny and increasingly high capacity cards at the border, since they are meant to be inserted in cameras, laptops, Blackberries, and tablets and other devices that will be rarely used for music and will be used primarily for some other unrelated purpose. While it’s not worth making a cross border trip to buy a new card to save $3.00, no doubt many Canadians would buy one or more when they are in the USA for other reasons. A much valuable “traffic” could be lost by Canadian retailers as a result.

Furthermore, the CPCC has learned to start small. The first levy on CDs was 5.2¢ for each CD-R or CD-RW in 1999 when these products sold for about $3.00 each. The Board eventually raised that amount to $0.29 per CD when the retail price would otherwise have been about half that amount. The “tax” currently sought of $3.00 on a $13 card could easily become a $6.00 tax on a $3.00 card in very short order, based upon past experience with the CPCC and the Board.

In answer to the inevitable complaint from the music industry that such a regulation would preempt a pending proceeding, history and precedent is totally against such as position. The entertainment industries were extremely voluble and successful in cutting JumpTV (the spiritual successor to iCrave TV) off at the knees while a Copyright Board proceeding was pending. This was done with quickie special purpose legislation in 2002, namely Bill C-48. There are lots of other precedents, including the use of regulation to permit the importation of used text books.

The CPCC’s proposed levy on memory is a desperate and unfounded attempt to remain viable - even though the notion of a private copying "tax" on such products has become obsolete. Memory cards clearly have little if any connection to the private copying of music. Such a “tax” would simply be a cash grab by the music industry. If a tax on iPods made no sense, then a tax on memory cards is simply nonsense.

The longer term fate of the private copying levy mechanism may well be decided in the course of the next copyright bill. However, the current legislation wisely foresaw the potential need and provided the mechanism to stop an undesirable levy,  such as this now proposed "memory tax", by quick regulation. It is time to do just that.

HK