A tax on Netflix could be coming to screen near you
Streaming services take a hit as states seek ways to offset declining revenue
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 consumers as extra fees of less than $ 1 each month. But tacked onto multiple streaming subscriptions, they could easily add $ 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 have initiated legal challenges, and at least one state 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.
“When you see the sales tax base dwindling like this, it is understandable for lawmakers to get together and say, ‘ Is there a way that we can expand this?’ ” said John Buhl of the Tax Foundation, a non- partisan think tank.
Netflix, which boasts more than 50 million U. S. subscribers, warns of attempts to assign utility- type taxes.
“Our view is that it is a dangerous precedent to start taxing Internet apps and websites using laws intended for utilities like water and electricity,” said spokesman Jonathan Friedland.
Apple and Amazon declined to comment; Hulu did not respond to a request for comment.
STATES ARE ALREADY TAXING
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 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 means an additional $ 10.79 annually.
Pennsylvania in August 2016 expanded its 6% sales tax to include streaming services and downloads of apps, movies, music, games and e- books. So when Apple or Amazon sells a $ 13.99 e- book 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.
‘ A TAX ON MILLENNIALS’
Kentucky began taxing Netflix in 2015, comparing it to a multichannel video programming service such as traditional pay TV. The state’s tax appeals board nullified the attempt, saying the service was not equivalent to traditional pay- TV. That decision was upheld by the state court.
“States are increasingly looking to raise revenue, but these efforts must be both lawful and not discriminate against any one sector,” said Dustin Brighton, vice president of state government affairs for the Internet Association.
Some new tax efforts would seek voter approval, but many result from adapting current laws to cover streaming services and digital goods. Some lawmakers have opposed them, saying while revenues may increase, they can backfire.
While in the Pennsylvania House, Republican Mike Regan, now a state senator, voted against the law, despite the state’s $ 1.3 billion deficit. He considered it “a tax on Millennials” and “shortsighted,” potentially dissuading companies that might locate in the state.
Taxpayers and legislators voiced opposition in 2016 when the city of Pasadena discussed applying its city utility user taxes on Net- delivered services.
Legal challengers to streaming taxes say federal law that prohibits a tax on e- commerce that discriminates against online providers means some of these municipal efforts should be halted.
Internet taxation became an issue two months ago when President Trump tweeted about Amazon, founded by Jeff Bezos, and the Bezos- owned The Washington Post, accusing “The #AmazonWashingtonPost” of “not paying internet taxes.”
There is no “Internet tax,” but Amazon collects sales taxes on goods it sells online to buyers in 46 states.