from the gimme dept
Hungry to boost municipal budgets, a growing roster of states and cities have spent the last five years or so trying to implement a tax on Netflix, Hulu, and other streaming services. Sometimes (like in Chicago) this has involved expanding an existing amusement tax (traditionally covering book stores, music stores, ball games and other brick and mortar entertainment) to online streaming. Other times this has involved trying to leverage existing cable TV laws or ordinances to try extract their pound of flesh from Netflix. In both, it involves taking rules written for the physical world, and applying them to the internet. Often haphazardly.
That’s what’s happening in Austin, where the city just joined a growing Texas lawsuit trying to force Netflix to pay the same taxes as local cable providers. Texas law allows cable and video providers to deliver cable TV via publicly-owned utility poles on public land in exchange for remitting 5% of gross revenue to the municipality. So the argument has generally been because Netflix bits technically travel over those same lines, they should also be responsible for paying that tax:
“Streaming services such as Netflix, Hulu and Disney+ have their content moved through those lines, but they do not pay the fees imposed on traditional cable TV providers. Austin officials say they should.
The Austin City Council voted last week to join the coalition lawsuit against streaming providers. It often depends on state law and local guidelines, but such efforts often don’t go very well. Georgia, Indiana, Ohio and Nevada have all pursued similar efforts, and most of them have found themselves bogged down in elaborate legal fisticuffs for trying to apply laws generally written for different technologies and different eras to the modern streaming world.
Cable TV providers generally have a physical presence in the towns and cities they serve. Employees live in these areas, climb physical poles in these areas, and do tech support calls in these areas. By contrast, a company like Netflix may have little to no real physical presence in a town (outside of maybe some CDN hardware at an internet exchange point or regional ISP), so demanding they pay a tax under laws designed decades ago for different technologies often proves logically and legally unsound.
Netflix argued as much last January, making it clear the costs would be passed on to consumers:
“These cases falsely seek to treat streaming services as if they were cable and internet access providers, which they aren?t. They also threaten to place a tax on consumers that the legislature never intended, and we are confident that the courts will conclude that these cases are meritless.”
I suspect a lot of municipalities will continue to struggle to make progress here. Older franchise agreements and state laws in a lot of states exempt any service that doesn’t have significant local physical infrastructure. A mish mash of local court rulings means there’s not a whole lot of federal precedent on this stuff, but eventually this debate is going to wind its way to the Supreme Court, where the efforts could easily be swatted down by an over-arching federal ruling.