TaxProf Blog

Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Thursday, August 24, 2017

A 'Netflix Tax'? Yes, And It's Already A Thing In Some States

NetflixUSA Today, A 'Netflix Tax'? Yes, and It's Already a Thing in Some States:

Netflix — and tax?

Your monthly bill for Netflix, Amazon, Hulu and other streaming entertainment services could go up soon as states such as Illinois try to find ways to offset declining sales taxes and other revenue shortfalls. Chicago, Pennsylvania and Florida have already passed a so-called Netflix tax, and cities such as Pasadena, Calif. have broached the issue.

These taxes can translate to additional fees of less than $1 each month to consumers. But over the months — and tacked onto multiple streaming subscriptions — they might add up to $50 or more each year.

Netflix, consumer tax groups and tech trade organizations have voiced their opposition to such taxes, warning they can be unfair and deter innovation. Some opponents have initiated legal challenges, and at least one state has shelved plans after a court decision. But state and local governments aren't likely to halt fresh efforts as falling pay-TV subscriptions and video rentals mean there's less opportunity to tax cable bills or charge sales tax at the cash register. 

"The way, particularly, municipalities rationalize this is, 'Well, we don’t have Blockbuster Video anymore. We were charging them tax, that’s got replaced by streaming services like Netflix, so for us it's really just replacing one tax with another for the exact same service'," said Larry Downes, project director of Georgetown University’s Center for Business and Public Policy. 

Sales tax revenue last year grew less than 1%, after accounting for inflation, and states are facing slow growth into 2018, according to the Rockefeller Institute of Government at the State University of New York....

Where your Netflix is already taxed

States including Alabama, Illinois, Louisiana, Maine and West Virginia have considered taxes on streaming and digital entertainment. Those that have already passed so-called Netflix taxes give a sense of the fees facing consumers.

Chicago amended its 9% amusement tax, originally written to tax concert and sporting event tickets, in 2015 to apply to Netflix and other streaming entertainment, including online game networks. For a typical Netflix or Spotify subscriber with a $9.99 monthly plan, that translates to an additional 90 cents per month or $10.79 for the year.

Pennsylvania in August 2016 expanded its 6% sales tax to include streaming services, as well as downloads of apps, movies, music, games and e-books. So, when Apple or Amazon sells a $13.99 ebook to a Pennsylvania resident, the seller must include an 84 cent tax. The state has collected about $46.9 million in the first 10 months of the tax.

Washington, Florida and North Carolina also tax digital goods.... 

 

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Comments

Come on! Netflix represents a service purchased by a household. Such purchases belong in the state sales tax base and a tax on these purchases should not be labeled a "Netflix tax." States like Illinois would do well to think about extending their sales tax to all household services, not just Netflix.

Posted by: mike | Aug 24, 2017 10:54:42 AM