46 California Cities Join Rush To Impose 'Netflix Tax'

from the tax-ALL-the-things dept

Last year, Chicago proudly declared that the city would be expanding its 9% amusement tax (traditionally covering book stores, music stores, ball games and other brick and mortar entertainment) to online streaming services and cloud computing. While Chicago was hungrily pursuing the $12 million in additional revenue the expanded tax would provide, it ultimately faced a lawsuit questioning the legality of Chicago’s move. The ongoing lawsuit by the Liberty Justice Center claims Chicago violated city rules by not holding a full vote on the changes, and is violating the Internet Freedom Tax Act.

Legal or not, Chicago’s push to impose a Netflix tax has opened the floodgates.

Earlier this year, the Pennsylvania legislature expanded the state’s 6% sales tax to cover digital downloads and subscription services like Netflix and Hulu — but also music, e-books, apps, online games, and ringtones. And now Pasadena, California, has joined the fun, applying its own 9.4% tax on streaming video providers such as Netflix, HBO Go and Hulu. In fact, Pasadena is one of 46 total California cities that are rushing to embrace the tax to help shore up city budget shortfalls. But much like Chicago, there are a number of groups ready to sue over the move, claiming these cities don’t have the authority:

“Jon Coupal, president of the Howard Jarvis Taxpayers Association, called the tax ?very suspect.? The association?s legal team is currently investigating the legality of the new interpretation of the tax.

“We will be taking a very close look at this,? Coupal said. ?If we determine this is an extension of an existing tax, then under the Constitution, they need voter approval. They can put as much lipstick on this pig as they want, but the pig is still a tax increase.”

Pasadena, however, says that city laws have always provided it with the authority to tax cloud-based services:

“Pasadena?s Finance Director Matthew Hawkesworth made his determination Thursday that the tax applies to video games and streaming services similar to cable ?regardless of the content of such video programming, or the technology used to deliver such services,? according to a memo to City Manager Steve Mermell.

“It?s our interpretation because of our code, these types of video services have always been eligible to be taxable,” Hawkesworth said. “The administrative ruling is instructing the various companies that offer video service that the tax includes their services as well, and it will be incumbent upon them to collect the tax and remit it to the city.”

The efforts to tax all cloud services are creating an absolute legal minefield over determining exactly where a cloud-based transaction is taking place, when to apply said tax, and who intends to collect it. Who pays sales tax when an app developer in New York relies on a cloud computing provider in New Jersey, and sells to customers in Illinois? Nobody appears to know and the answer may differ state by state. But one thing’s for sure: lawyers certainly won’t be going to bed hungry as cities rush to cash in on the rise of the internet video revolution.

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Companies: netflix

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Comments on “46 California Cities Join Rush To Impose 'Netflix Tax'”

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techno says:

Now IANAL but this seems a bit complicated

This would literally kill every online business if it were allowed to continue. If taxes can be levied on a business for streaming *into* a location then why not shipping? Why not city sales tax on online purchases? Why not add a free speech tax? What couldn’t they tax? This would make every single city and town in the US able to charge their own taxes for anything online on top of fees already put in place as this is saying that cities and towns have the ability to regulate interstate commerce. This seems like exactly the thing that falls under the federal and not local jurisdiction.

cpt kangarooski says:

Re: Now IANAL but this seems a bit complicated

If they charge for the service, then they should be taxed (if at all, but that’s a policy question) based on the user’s billing address. After all, the provider can choose not to do business with users giving addresses for certain jurisdictions if it’s too onerous, and in the event of non-payment would rely on government services at the place the user gave as a billing address in order to collect which seems like a good justification for being subject to the taxes of that government.

OTOH it’s not practical to be taxed based on the user’s actual location, which will vary all the time and is difficult to discern at best.

James Burkhardt (profile) says:

Re: Re: Now IANAL but this seems a bit complicated

Did you know that there are nearly 10,000 sales tax jurisdictions in the US? And that to remit sales tax you need a sales tax certificate from the state at minimum? Did you know that most states have more than one sales tax authority? And that sales tax waivers are issued by the state? and that every state has its own policies related to when an individual qualifies as a reseller?

Tracking all of this is terrible, and states in general arent willing to make broad simplifications like maintaining an easily accessable central database of tax rates and jurisdictions in their state.

But all this is besides the point. In ca services are not taxed, only tangible personal property. I really cant understand how it applies to my netflix subscription.

cpt kangarooski says:

Re: Re: Re: Now IANAL but this seems a bit complicated

Sure, it’s a mess. And for most things, I’d be opposed to a sales tax anyway, simply because it’s regressive. All I’m saying is that if there is a tax on Internet services, it is better for it to be based on billing address than actual address at the time of sale.

Anonymous Coward says:

"from the tax-ALL-the-things dept"

Shouldn’t that be “from the repeatedly-tax-ALL-the-things dept”?
I’m pretty sure, even without looking it up, that people using Netflix already pay at least 2 taxes to access the service.
But of course that as never stopped anyone from heaping more and more taxes on top of anything, if they can get away with it.

Anonymous Coward says:

Re: Re: Re: Re:

actually no, it was not reasonable. While true no one is an island, it is uncalled for to say that because you relied on someone else’s effort to perform your effort we can now CONTROL you or belittle your EFFORT in some way is fucking EVIL!!!

So unless YOU went out cultivated the land, on your own, milled it, prepared it, and consumed it without tools or education provided by someone else you are in that boat. ALL are in that boat. That being said, Obama can shut the fuck up on that front!

Ford once said “To do more for the world than the world does for you – that is success.”

While Ford was no fool, he sure as fuck paid little attention to his own musings. It is impossible for anyone to do more for the world that it does for them. No one does a single fucking thing without having first benefited by the efforts of someone before them!

Roger Strong (profile) says:

Re: Re: Re:2 Re:

Every single President – including every Republican President – right back to America’s founding fathers – has supported the idea of paying taxes to cover services, infrastructure and other projects for the public good. Nothing in Obama’s statement differs from the policy of any Republican President in the history of the country. Republicans simply took it wildly out of context.

Naturally, shortly after, the second day of the 2012 Republican National Convention was themed “We Built It.” And naturally, this was held in a stadium constructed using 62% taxpayer financing.

Anonymous Coward says:

Re: Re: Re:3 Re:

“Republicans simply took it wildly out of context.”

I’m not a Republican, and I think Obama’s statement was derogatory and belittles the efforts of entrepreneurs and small business owners. That infrastructure he is so proud of was built on the backs of the very people he stated didn’t build that. Our contributions to society, be it taxes or effort, is what allows that infrastructure to exist in the first place.

I did indeed “build that”, and so did every other American that worked his ass off and paid his taxes.

Anonymous Coward says:

Re: Re: Re: Re:

The ads being shown were, in the past, enough to pay for the programming – but not anymore. I do not see that the programming has gotten any better so it is certainly not worth any more than it used to be, why should I pay increases that far outstrip inflation?

I think they are (have been) trying to make the web just like tv. What they do not realize will be their demise.

Nathan F (profile) says:

Re: Re: Re:

Yes, I’ve seen little notices on things like Newegg and other places I have bought online from that say ‘X% tax included for residents of State A.’ But if Netflix is in Seattle Washington (I’ve no idea where it really is..) and cities and counties in California are charging tax, isn’t that interstate commerce?

Netflix and others should just claim that the office their billing comes from is overseas and then only the Federal Government can charge taxes on imports.

Michael (profile) says:

Re: Re: Re: Re:

I believe Netflix is headquartered in Los Gatos, CA.

However, it’s quite a bit more complex than that. Just having equipment in a state can make you liable for taxes in that state, and Netflix, for example, has worked with certain providers to put equipment that they own in server rooms all over the country.

art guerrilla (profile) says:

Re: Re: Re:2 Re:

here is what i have a problem with, on what MORAL principle are they basing the ‘tax’, which appears more like extortion or ‘protection’ money, rather than based on the idea they are using state infrastructure that they want to be renumerated for ? ? ?
(cause everyone knows how quickly the tubes get worn out with all those gigabytes of data abrading the wires such that they have to be replaced so often /s)

Michael (profile) says:

Re: Re:

Yes, but this is also an attempt to re-capture tax revenue that is being lost due to cord-cutting and other areas where online services are replacing some money being spend on local entertainment.

The real problem here is that, if it survives legal challenge, it will cement the monopoly certain online services already have. The barrier to entering the market for streaming video will have now have a complex taxation scheme that you need to support and start-ups may not be capable. In addition, since it can probably only apply to companies that have physical presence in California, it creates an incentive for start-ups to be built elsewhere (and CA does not need any more of those). Finally, if this catches on country wide, it will create an incentive to locate these types of companies in other countries.

Wilhelm Arcturus (user link) says:

So I tied an onion to my belt, which was the style at the time.

I remember back in the late 80s the state of Michigan sent out threatening letters demanding that we, in California, collect and send them sales tax on items purchased from us by Michigan residents. The whole interstate commerce aspect aside, our customers in Michigan were all school districts. (Ordering replacement KoalaPads, if you’re old enough to know what those were.)

So, in our case, it was literally one government entity attempting to stick it to another one in the same jurisdiction.

Anyway, we ignored it, somebody else sued, the interstate commerce clause prevailed, and I am not sure how this new idea is dramatically different from that experience.

Anonymous Coward says:

Dems love their taxes

Why not tax everything that moves or not moves? Tax is good. If you can afford movies, music and games you are rich enough to pay tax. Now how these businesses will keep up with who to pay, how much to pay, when to pay is their problem. Just more of that job and business killing regulation Dems love so much.

Anonymous Coward says:

The Tax Poem


The Tax Poem
Author Unknown


Tax his land, tax his wage,
Tax his bed in which he lays.
Tax his tractor, tax his mule,
Teach him taxes is the rule.

Tax his cow, tax his goat,
Tax his pants, tax his coat.
Tax his ties, tax his shirts,
Tax his work, tax his dirt.

Tax his chew, tax his smoke,
Teach him taxes are no joke.
Tax his car, tax his grass,
Tax the roads he must pass.

Tax his food, tax his drink,
Tax him if he tries to think.
Tax his sodas, tax his beers,
If he cries, tax his tears.

Tax his bills, tax his gas,
Tax his notes, tax his cash.
Tax him good and let him know
That after taxes, he has no dough.

If he hollers, tax him more,
Tax him until he’s good and sore.
Tax his coffin, tax his grave,
Tax the sod in which he lays.

Put these words upon his tomb,
“Taxes drove me to my doom!”
And when he’s gone, we won’t relax,
We’ll still be after the inheritance tax.

This poem is presumed to be in the public domain;
no copyright or credit information can be found.

DigDuggery says:

Hmmmm - First RICO case where States are the defendents?

Since all of the states involved are violating the Internet Freedom Tax Act, that makes them all criminals.
Since they are all doing the same thing, jumping on the me too wagon, and especially if all of their State Attorney Generals belong to some form of Federal Attorney General organization, said organization could be targeted for criminal lawsuit, where they are all charged, convicated and sentenced together.

SomethingBiggerAtPlay says:


Local and State governments can’t pay their bills.

If this were the 1970’s, you’d be receiving a video tape, which during transit would generate revenue from the mom and pop shop who bought them and provided rentals, the transportation companies that utilize the roads who brought them the tapes to rent, and so on along to commerce train… but now with digital dozens of points of commerce are gone and along with it a revenue stream.

Amazon, NetFlix, ITunes, what ever the service, it’s called commerce… why Ecommerce got out of paying their fair share came down to the complexity of local, state, federal and international tax rates but that’s an excuse from yesteryear and today’s AI systems could easily compute for every tax region.

Anonymous Coward says:

Re: PlayingDevil'sAdvocate

There is still a revenue stream, it is just not the one the one that the State has leeched on to yet. You talk about roads and how a video rental used them, agree 100%. Using the roads should incur a tax for the people using the roads, but don’t make the people that aren’t using the roads pay for the roads. Had the government built out the infrastructure for the internet pipes then I would not gripe so much about the tax, but they didn’t. Private industry via my monthly ISP bill did. You want me to pay the tax then you (the government) build out gigabit internet to my house. Oh wait… they can’t because they private industry lobbied for it to be illegal.

Anonymous Coward says:

Not a big fan of more taxes

How would one get around paying this tax? As of right now I use my CC to pay for netflix and that is registered to my home address. So I see there where it is easy for Netflix to charge me the tax. Could I register a CC to a PO box in a State that does not charge the tax? Is there an alternate payment method that I could use that is not linked to my home address?

John85851 (profile) says:

It's like paying VAT in the EU

I don’t blame these cities for trying, since this is exactly what’s happening in the EU, though with countries instead of cities.
It works this way: if I sell a product to a customer in France, then I have to collect a “VAT” based on France’s rate and pay it to the French government. If a customer in Austria buys the same product, I have collect the Austrian VAT and pay it to the Austrian government.

So, yes, the VAT is based on the customer’s address, which may get screwy if a guy from California is on vacation in Salzberg: does he stay at a hotel in Germany or Austria to get a lower VAT? Or is he exempt because he’s on vacation?

Large business can adjust their accounting to handle this, but small businesses can either not sell to all the EU countries or they can pay an accounting company to handle the VAT collection and payment for them.

So why shouldn’t every US state or every city do the same thing? It’s a quick way for them to make money, even if it’s a huge burden on businesses.

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