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New York to Tax Online Education

In a move that could have very mixed consequences for students and schools alike, the New York State Department of Taxation and Finance has put forward the notion that online degree programs should be subject to state sales taxes. While it is not yet law, the current economy could make the proposal very enticing for government officials looking for new ways to bring in state revenue -- and, given New York's status as a trend-setter on the political field as much as anywhere else, there is a real possibility that a successful push for the taxation could cause a ripple effect throughout the country.

"State governments are strapped for money, and this represents an administrative ruling that appears to me to broaden the tax base," said Melanie Hill, a tax specialist with Dow Lohnes Price Tax Consulting Group LLC.

"I think it's a sign of our times that states are looking to pick up revenue they haven't before," she added.

On the one hand, the agency is portraying this as a case of taxing educational software -- definitely a common practice, as with most purchasable goods; on the other hand, the access granted to a web page for distance learning doesn't leave the student with a permanent piece of software at the end of the day.

The agency also cites the lack of human interaction as separating online degrees from traditional degrees as more self-help than education (and hence subject to taxation). The possible ramifications of this definition could be severe. Not only do they push toward a redefining of what makes a college education (is human interaction necessary to facilitate true learning?), but taxation could push away potential students at a time when managing tuition is already a struggle.

Taxation on education: a necessary evil in a faltering economy, or just one more roadblock keeping a college education out of reach for everyday people? It's a debate we'll have to stay tuned for in the coming months as New York hashes out its differences.

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