You could soon have to pay streaming-video sales tax

A tax on Netflix, Hulu and other streaming-video services may be coming soon to your city or state. As jurisdictions lose the sales-tax money they once received from DVD rentals, they’re looking to make it up by taxing the streaming companies that put Blockbuster and other rental companies out of business.

A recent report by Stateline, a non-partisan arm of Pew Charitable Trusts, details the spread of taxes around the country and indicates that revenue-hungry jurisdictions are eyeing cloud services as a new target for taxation.

In August, for example, Pennsylvania slapped a 6 percent tax on streaming services. Chicago tried a similar move, but it was delayed by a lawsuit. A number of cities in California, including Pasadena, already tax streaming services, and dozens more are considering such a tax.

Pasadena’s tax of 9.4 percent went into effect on the first day of 2017. The fee 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, as reported by the Pasadena Star-News. The city estimates the tax will produce $10 million in new annual revenue. A similar tax in Chicago would bring in an estimated $12 million a year. That tax could have gone into effect in 2015, but the lawsuit that delayed it has not yet gone to trial. 

It’s likely when not if for streaming-video sales tax

The city governments in Pasadena and Chicago appear to have decided to enact the sales-tax measures administratively, without a vote or public hearing, perhaps hoping the taxes would go unnoticed until they were already being collected. California’s constitution mandates that voters must approve new taxes, but officials in Pasadena and other cities say a vote isn’t required because they already have the authority to levy fees under existing legislation. 

The fight over a streaming-video tax is similar to attempts to tax online sales. Amazon resisted that tax for some time, but it now collects sales fees on transactions in California and other states. The original impetus to exempt online commerce from sales taxes was Congress’s desire to encourage Internet growth. That made sense in the early 1990s, but the Internet has long since outgrown its cradle. Meanwhile, online competition has devastated brick-and-mortar retailers, and many of those companies say sales-tax exemptions for Internet companies amount to unfair competition. 

Jurisdictions around the country are seeking ways to shore up their budgets, and online video seems like low-hanging fruit for the Tax Man.