Grouping adds another fold to the calculation. According to the Digital Media Trends Survey, more than half of respondents got “free” streaming subscriptions as part of their home internet or mobile subscription. In New York, for example, streaming videos are exempt from sales tax, but streaming video games are not, so some streaming services began applying state sales tax in late 2021.6 Now, providers and bundlers must monitor the features of each service package and determine tax implications. Customers who cut the cable to consume their video via streaming services still rely on fiber optic cables that lie beneath city streets to connect them to the internet. Since streaming services use this broadband infrastructure, many cities argue that they should pay the franchise fees that cable companies pay. The streaming services tax in Chicago was actually a “reinterpretation” of an earlier tax program that had already introduced a tourist tax on tickets for leisure activities and concerts that are “delivered electronically.” The introduction of a completely separate tax that only applies to streaming services also creates problems, as the Internet Tax Freedom Act of 1998 prevents state and local governments from imposing taxes that unfairly target Internet-based businesses. The attempt to merge streaming with pay-TV services also failed legal scrutiny, as a Kentucky law oriented in this way was crushed by the courts. Apple TV is Apple`s streaming device that accesses the Apple TV+ service ($4.99 per month), Netflix, Hulu, YouTube, Amazon Prime, and countless other entertainment apps. How does VAT affect streaming services such as Netflix, Spotify and other similar services? Auxier recently wrote in a blog post that Chicago will generate much more revenue by applying a pleasure tax to streaming services instead of levying the general sales tax. While the city`s sales tax is only 1.25%, the entertainment tax is 9%. On September 23, 2021, the Los Angeles Superior Court dismissed Lancaster`s claims because neither Netflix nor Hulu use public rights of way, such as laying wires above or below Lancaster streets, to bring their content to viewers.3[3]James Nani, Netflix, Hulu Win Challenge To Calif. City`s Video Fees, LAW360 (September 23, 2021, 6:26 p.m.), www.law360.com/articles/1424455/netflix-hulu-win-challenge-to-calif-city-s-video-fees. Instead, they use prefabricated infrastructure such as wireless Internet signals or cell towers.4[4]Id.
It was a rare win for streaming services, which haven`t done as well in similar litigation in Missouri, Georgia and Illinois. Some state and local governments have found new ways to tax streaming services. Florida imposes a communication tax on streaming, Kentucky a special tax on videos, while the city of Chicago levies an entertainment tax originally designed for concerts and sporting events.5 And to be clear, not all states tax streaming TV services like YouTube TV. You have to do your homework. According to a February 2020 article from CNBC, about half of U.S. states have started taxing streaming subscriptions like YouTube TV, Hulu, Sling TV, Netflix, Disney+, HBO Max, etc. These two states did so in slightly different ways, with Washington stipulating that the tax was applied to the actual item that was paid, rather than how it was accessed. So, if you access a specific movie or album through a service you pay for, everything you pay for is subject to sales tax. In Pennsylvania, the state simply amended existing sales tax law to include streaming services. In 2015, Chicago introduced a so-called “Netflix tax” to impose a 9% tax on subscribers to streaming platforms.
In 2018, Apple filed a lawsuit against Chicago to repeal that law, but the case was stayed for two years. Now, Apple and Chicago have reached an agreement to settle the lawsuit. City and state legislatures are taking on streaming giants like Netflix, Hulu, and Disney+ to generate millions in tax revenue. They do this by charging a “video service fee,” which is arguably justified by a company`s use of local infrastructure. As a result, the City of Lancaster, California, attempted to invoke California`s Digital Infrastructure and Video Competition Act (“DIVCA”) to charge Netflix and Hulu a fee of 5% of the gross margin generated by the community`s customers.1[1]Cal.