Tax on Recordable CDs?

It's worse than you think. And they want to increase it.

"The law specifically states that any qualifying medium that is sold by an importer
or manufacturer... will be subject to the levy."

Prices aren't expected to continue dropping in the CD-recordable media department. In fact, Bill C32, instituted Jan. 1, 1999 (but subsequently delayed) increases the retail costs of all recording media. The levy (incorrectly referred to sometimes as a tariff or tax), ostensibly a fee to be paid to the recording industry, adds a surcharge of roughly 49 cents to all CD-R costs. Indeed, the Future Shop on Dec. 31st told The Computer Paper that its head office had advised stores that their CD-R price would increase "300 percent" as a result of the levy. Not surprisingly, all the stores we visited on that day were sold out of CD-R media. As of this writing, the 2003 version of the levy is slated to be voted upon on Dec. 12, 2003. If it goes through, the levy will be expanded to include not just CD-R media, but all digital media, including portable MP3 players, DVD recordable and rewritable media and even small forma-factor hard drives. And, in an ironic twist, the artists in the recording industry have yet to see ANY of the millions of dollars sollected so far.

Here's a report from slashdot.org sent in by one of our readers.
If you thought the US Government was bad, you should see what crap the Canadian government has come up with. The government is [soon] imposing levies on audio recording media at the rate of *50 cents* per 15 minutes of each digital audio recording media sold or imported. With a CD at 75 minutes, that means a extra $2.50 (CDN) per CD, which is more than what blank CD media costs. The full text of this abomination is available in the "Canada Gazette" on the Government of Canada web site. The relevant information is on page 121 onwards...

http://canada.gc.ca/gazette/part1/current/g1-13224.pdf
(This file requires Adobe Acrobat Reader, a free download.)

This bill is in the house of commons to be passed in late 1999. And there is evidence (listed below) the gov't will ask for back-taxes to Jan 1 if it passes. Fight the fee by emailing, writing or faxing your local elected official (a list of addresses is at http://www.parl.gc.ca/36/senmemb/house/members/alpha-e.htm) and the address listed below, but it might not be a bad idea to stock up on CDs and other recordable media now.

Another reader sent the following report:
About the CDR tax... Actually, its a little more serious than that. I spoke to:

Claude Majeau
Secretary to the Copyright Board
56 Sparks Street, Suite 800
Ottawa, Ontario
K1A 0C9
(613) 952-8621

The publication of the "Private Copying 1999-2000" act in the Gazette drew only 3000 objections. Only 40 objectors will be testifying. The law has already been passed, however the final tariff amount has not been decided. This will be decided somewhere around mid 1999 and will likely be made retroactive to the beginning of 1999. What this means is: a wholesaler must collect and plan for the maximum levy of $2.50 per CD although if the tariff is set lower, they get to keep the difference.

Letters of objection must be sent to Claude Majeau above; I would also send them to my member of parliament. This tariff affects *all* potential audio recording media: It is CDN $0.25 per 15 minutes of each analog audio recording media. e.g., Cassettes, VCR tapes etc. So a 90 minute tape will have $1.50 tariff applied to it. Even if you use it to save a VIC20 game. It is CDN $0.50 per 15 minutes of each digital audio recording media. e.g., CDR, DAT etc. So a CDR will have a $2.50 tariff applied to it. Even if you turn it into a coaster.

These tariffs will be applied at either point of manufacture (if in Canada) or point of import. I liken it to a tax on blank paper that would be used to reimburse newspaper and book publishers as you *might* use it to copy their information. The tariffs are collected on behalf of, and distributed to the music industry groups, including SOCAN. They will probably be distributed to artists based on their record sales and popularity. So Celene Dion, Bryan Adams would make tons of money, the *little* guy next to none. It is also a very strong blow to the independent recording industry as their consumable supplies now support an industry that they are not part of. To be frank, I think that it is an issue that your readership would be very interested in hearing about.

Agreed! Help to stop this unfair tax, even if you don't use recordable CDs. Remember, letters to the government are postage-free. Please send a printout of this message with the words "I PROTEST!" to Claude Majeau and your local MP today.

As well, you should email Mario Bouchard (bouc...@smtp.gc.ca, although some readers report that this address now bounces mail), a government contact person regarding the proposed tax on CDs or, if you prefer, telephone him at 613-954-6470.

When asked how much the levy will be on a blank, 90 minute computer CD, he sent the following reply:
"No one knows. That will be determined by the Board. Copyright owners asked for as much as 50 cents per 15 minutes, which would put the levy at $3.00 on a 90-minute CD-R. However, it would be much less than that (one or two cents, even). It could even be nothing (if CD-R are not recording media of a type ordinarily used by individual consumers to reproduce sound recordings). Unfortunately, we won't know until the Board renders a decision, which will not be until the Fall of 1999."

When we requested more information, Mario Bouchard sent us the following document:

 INFORMATION ABOUT THE HOME TAPING REGIME

1. Until recently, individuals who taped songs off the radio or made copies of CDs they had purchased, say, for use in the tape deck in their car, infringed copyright. The home taping regime, which is now in force as the result of an Act of Parliament, changed this. Individuals are now allowed to copy a sound recording of a musical work onto an audio recording medium (e.g. an audiocassette) for their own private use.
2. Those who own the rights associated to those sound recordings (composers, authors, performers and producers) are entitled to be remunerated for the copies that are being made under it. This means that
   • the remuneration is solely on account of private copying taping for one’s own personal use;
   • only persons who own rights in sound recordings of musical works are entitled to share in the remuneration. Owners of rights in other works (computer programs, movies, literary works) are not.
3. The remuneration must be paid by manufacturers and importers of “blank audio recording media”, in the form of a levy to be imposed on those media, to be collected when they are sold or otherwise disposed of by the manufacturer or importer. Media that are exported from Canada are not subject to the levy. This means that:
   • the Board must certify a tariff and set a levy, although the final content of the tariff and amount of the levy could be quite different from that the collective societies have asked for;
   • the levy cannot be imposed on anyone else, nor can it be set “at the retail level”, as many persons proposed;
   • the levy is payable by the importer or manufacturer without regard to its end use. That remains true even if the enduser is licensed to reproduce the works or is able to establish that a qualifying medium will not be used to copy sound recordings of musical works. The Act makes no provision for a refund mechanism of any sort, except in the case of societies that represent persons with perceptual disabilities. However, the fact that some qualifying media may be used for purposes other than reproducing sound recordings of musical works could be taken into account in setting the amount of the levy;
   • the Act exempts from the levies recording media that are sold to a society, association or corporation that represents persons with perceptual disabilities. There can be no other exemption.
4. The Copyright Act orders that levies be set and determines how this is to be done. Those who are entitled to receive a remuneration must first associate themselves into one or more collective societies. The societies must file proposed tariffs with the Copyright Board and the Board must publish the proposals in the Canada Gazette as it received them. Anyone is allowed to file an objection. The date to file objections was August 12, 1998.
5. Those who ask for the levy and those who object to it will now have the opportunity to file evidence and argument for or against the proposals. Because parties require time to prepare, hearings will not be held until some time in May, 1999. A decision will not be issued until the Fall. The Board is specifically required to set fair and equitable levies.
6. The law specifically states that any qualifying medium that is sold by an importer or manufacturer on January 1, 1999 or thereafter will be subject to the levy. This means that:
   • once the Boards decision has been issued, the person entitled to collect the levy will be able to ask for payment on account of sales going back to the start of 1999;
   • retailers who raise their prices on stock that they purchased before 1999 will not be required to forward that money to copyright owners.
7. The levy will be collected by a single collecting body. That body will be a private organization. What it collects will be paid to the collective societies representing rights owners in the proportions set out by the Board. Once the Board has determined the share each collective society will get, those societies are free to distribute what they receive as they wish. As far as the Board knows, collective societies have not decided whether some or all of the levies will in fact be distributed based on the amount of air play received by each recording.
8. Only blank audio recording media are subject to the levy (Aha!! - Ed.). To meet the definition, a medium must (a) be of a kind that can be used to reproduce a sound recording, (b) be of a kind ordinarily used by individual consumers for that purpose AND (c) have never had sounds fixed onto it.
   • The levy can only be applied to qualifying media, which must be blank media. The levy could not, as one person suggested, be imposed on recorded media so that the cost of further recordings is paid for when purchasing the original.
   • Whether a kind of medium is ordinarily used by individual consumers will in turn raise two questions. First, what is an individual consumer? Second, at what point does a use become ordinary? Thus, it may be certain users are not individual consumers, that certain types of media are not ordinarily used by individual consumers or that individual consumers do not use them to reproduce sound recordings. Determining which media qualify for the purposes of the home taping regime, and which do not, is still an open question and will be an important part of the Boards job in this matter. More specifically, whether recordable CDs or voice grade (normal bias) audio cassettes qualify is still very much an open issue.
9. The conditions outlined above are set out in the Copyright Act. The Copyright Board cannot add to, nor subtract from, any of these provisions. Only another Act of Parliament can do that.
10. Any comments about how the regime is set up or any suggestions you may have about changes that you think should be made to the Copyright Act should be addressed to the departments of Industry and Canadian Heritage, whose ministers are responsible for the legislation. The persons to contact are:
    • Eloise Arbour, Policy Analyst, Canadian Heritage, tel (819) 997-5088, email : eloi...@pch.gc.ca
    • Albert Cloutier, Policy Analyst, Industry Canada, tel (613) 952-3804, email clou...@ic.gc.ca
11. If you want to know more about what copyright owners are planning to do about their proposals, or if you want to make any comments to them, you can contact the person they have designated as spokesperson for all collectives who filed proposals. He is Paul Audley, tel (416) 485-3550, email audl...@total.net

According to Terry Spence, the Program Director at CFAX 1070 AM, his media prices are going up at the wholesale and distributor level. Spence says, "At a radio station, as you know, we use lots of cassettes, but we don't use them to record music, but we were denied an exemption, and now, our prices will double." C-90 prices, he says, are going up as much as $1.90. Spence adds that cross-border shopping (see our note, below) is likely to increase as a result of this new levy -- another damaging factor to the Canadian economy.

Note: Although the Act states that the levy "must be paid by manufacturers and importers," our sources at the Canadian Government's import duty collection offices said there had been, as of the last week of December, no information on how or when this levy will be collected. At any rate, non-declared recordable media seems poised to become an issue that in some ways parallels the US/Canada "black market" cigarette situation.

Craig Thompson, President of Paradon Computers in Victoria, B.C., feels that this will also negatively affect the popularity of CD Recorders, and may in fact cause a short-term shortage of recordable media, and/or a long-term slowdown in sales.

Then again, not everyone is convinced that the levy will affect prices.

Neil Herber has assembled a set of links and a "FAQ" style copy of Mr. Bouchard's letter at: http://neil.eton.ca/copylevy.shtml. He claims that implications that levies will be applied at either point of manufacture (if in Canada) or point of import are "very misleading."

Says Herber, "The levy is triggered by the sale of blank media by the importer or manufacturer. Every consumer in Canada can avoid the tariff completely (and completely legally) by becoming their own importer (by mail order from the US, for example). As long as they do not sell the media in its blank state, they *do not* have to pay the levy. This fact alone will serve to keep the prices of blank media down. Unfortunately, the wild rumours flying around have caused people to stockpile CD-Rs. This has led to short term shortages and price increases. Once February rolls around and CD-R prices are still below $2, lots of people will want to unload their 'surplus stock' driving prices even lower."

As noted earlier by our "Aha!!" comment, the most viable loopholes for getting around the levy is to record a tiny bit of audio on the media, thus rendering it ineligible for "blank media" status as specified in item (8), above. Unfortunately, as the levy is applied at the distributor level, the manufacturers must take the initiative. Hopefully, they will see that it is worthwhile to do so. Some manufacturers, such as Fuji, have already pioneered the idea of erasable advertisements on discount-priced floppy disks. I expect enterprising manufacturers to do the same here. After all, it will give them a key selling advantage. Who wants to pay $56 dollars (estimated) tax on a DVD-RAM disc, when those become popular?

Finally, the disturbing possibility exists that stores that have bought large supplies of media at the lower prices will jack their prices up to "competitive" market prices, in keeping with the allure of easy and completely legal money as provided by loophole, er, we mean item (6b), above. Indeed, on Dec. 21st, we purchased name-brand 120-minute VHS tape for only $3.99. Future Shop had priced its 120-minute VHS video tapes at $6.99 each by the afternoon of Dec. 31st -- before the levy came into effect. Hmmm.

Please help! Thanks.
Graeme Bennett,
Senior Editor,
Canada Computer Paper

Addendum:
A Virtual Petition is now available on the Internet to sign for those with concerns about Bill C32, the Levy on Blank Audio media. The petition can be reached at www.sycorp.com/levyinfo.htm. According to Sycorp's Malcolm Gray, the petition already has over 22,500 names and is the largest Internet petition in Canadian history. Details about the levy can also be reached at this site.

Reader Misha Glouberman reports that lawyers representing SOCAN have demanded the removal of his satirical page on the CD-R levy at http://www.acmesignal.com/socan/. SOCAN, the society of composers, authors and music publishers of Canada, is an association that collects royalties and hence has much to gain from this levy.

Our sources in the CD-R manufacturing and distribution sectors tell us that, as of Jan. 2, there are approximately 100 million pieces of unlevied CD-R media in the distribution channel in Canada. Prices are likely to hold at current levels (under $2/disc) for much of 1999.

A final thought: if this levy is, as its proponents have specified, intended to remunerate those who own the rights associated to sound recordings, will some people believe that, since they are already paying a fee, they are now entitled to make those recordings?

It would be sadly ironic if this ham-handed levy somehow resulted in more illegal copies being made under it. What's next, a levy on blank paper?

For Further Reading

• The Computer News - May 2 Updated info!
• Recording Tax Delayed... (1/26/98)
• TCP's CDR report.
• TCP's report on CD-Rewritable Drives
• Andy McFadden's CD-R FAQ (http://www.cdrfaq.org/) lists the top models of CD-R and CD-RW.
• For more info on CD-R technology, see http://www.cd-info.com.
• See our review of the HP 7110e
• DVD Status Report
• Recording CD ROMs
• Deal-Mac tracks the best prices on CD-R drives and shows how you can get blank CD-R media for free.
• See CD-R FAQ for more info on CD-R, DVD and related technologies, plus buying tips and other info.
• A technical description from Sony of how CD-R, CD-RW and other writable media work: http://www.sel.sony.com/SEL/rmeg/mediatech/overview.html