Multi-State – Taxes Make Netflix, Spotify Victims Of Their Own Success

American Institute For Economic Research (AIER)
by Chloe Anagnos
December 1, 2017

Americans may soon find it more expensive to binge watch their favorite television shows and listen to their favorite music on Internet streaming services like Netflix, Hulu, and Spotify.

These Internet services are wildly popular among younger generations and, not surprisingly, are growing faster than traditional services. In fact, analysts expect Netflix to have 60 million subscriptions in the United States by the end of 2019. By 2020, Netflix may reach 160 million subscribers worldwide.

And local and state governments have taken notice.

According to USA Today, Chicago, Florida, Pennsylvania, Washington, and North Carolina have already passed legislation to tax streaming platforms.

Called the “Netflix tax,” the additional fees cost consumers less than $1 per month, but per year, the average consumer may pay more than $50 to use multiple streaming services on multiple devices.

Moreover, some cities in Virginia recently adopted legislative agendas that pressure state lawmakers in their next session to waive the Communications Sales and Use Tax exemption for audio and video streaming services and prepaid phone services.

Lawmakers want the 5 percent tax that’s already imposed on cable-television subscriptions, traditional cell-phone plans, landlines, and satellite radio and television to apply to subscriptions for Netflix, Hulu, Spotify, and Xbox Live.

Alabama, Louisiana, Maine, and West Virginia have also considered levying the tax but have not yet passed legislation to do so.

Passing a Netflix tax backfired for lawmakers in the Bluegrass State, but turned into a major win for residents.

In 2015, Kentucky began taxing Netflix, but the state’s tax appeals board nullified the attempt, saying that the service was not equivalent to a traditional pay-TV service. That state court subsequently reaffirmed that decision.

These taxes appear to be imposed on purely digital providers, whether they have any nexus or receive any public services in the state or not, simply to replace the tax revenue lost from traditional, brick-and-mortar storefronts.

“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,'” Larry Downes, project director of Georgetown University’s Center for Business and Public Policy, told USA Today.

So far, only Netflix has publicly spoken out against streaming 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

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