Pennsylvania, Washington, Florida, and North Carolina have passed what is being dubbed as the “Netflix Tax.” Essentially, Netflix has become such an ingrained part of society, several states are considering it a utility.
The tax is being implemented as states try to accommodate for a decline in sales tax.
“Sales tax revenue last year grew less than 1 percent, after accounting for inflation, and states are facing slow growth into 2018, according to the Rockefeller Institute of Government at the State University of New York,” reports USA Today.
This tax is not exclusive to Netflix but also applies to Amazon, Hulu, and other streaming services.
Stephen Kranz, attorney with McDermott, Willis & Emery says this marks “the very beginning of a trend where local governments begin evaluating their policy vis á vis digital taxation.”
This tax was first pioneered by Kentucky in 2015, but the attempt was nullified by the state tax appeals board. The state affirmed that online streaming services are not the same as traditional pay-TV services.
While in the Pennsylvania House Representative Mike Reagan, now Senator Reagan (R) voted against the law, describing it as “‘short-sighted’” and “a tax on millennials.” He also made the point that the tax could “dissuade companies that might locate in the state.” In August of 2016, Pennsylvania expanded their 6 percent sales tax to include streaming services.
With success in a handful of states, many more may soon follow suit, including Alabama, Maine, Illinois, Louisiana and West Virginia.
So how will this tax affect the wallets of less-than-wealthy millennials who use Netflix and other streaming services? For the consumer, these taxes could amount to less than an additional $1 per month. However, when applied to additional streaming services, it could end up as an additional $50 or more per year, according to USA Today.
Pennsylvania has collected about $46.9 million in the first ten months of its Neflix tax.
The additional tax income is not only appealing to states, but to larger metropolises too. Chicago expanded its 9 percent amusement tax, which targets concerts and sporting events to include Netflix in 2015. It has amounted to an additional $0.90 per month or $10.79 per year for users. Pasadena is also considering implementing the tax. When the idea was discussed last year, taxpayers and legislators vocalized opposition to the idea. Pasadena specifically discussed expanding the city utility user tax to include Net-delivered services.
Larry Downes, project director for Georgetown University’s Center for Business and Public Policy, explained how cities and states rationalize the tax:
“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.”
However, the beauty of innovation, like switching from VHS to online streaming, is the ingenuity, ease, and less cost (no tax!).
Netflix has more than 50 million subscribers in the US alone. The company has not publicly protested the tax but is dropping hints that they’re against “utility-type 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 Netflix spokesman Jonathan Friedland.