State Taxes Could Cause Spike In Streaming Prices

About 50 percent of U.S. states have already begun taxing residents’ streaming subscriptions to services like Netflix and Hulu, and others are considering doing the same, CNBC reported on Monday (Feb. 24).

“It’s a fast-moving policy development,” Michael Mazerov, a senior fellow at the Center on Budget and Policy Priorities, told CNBC. “Bills are constantly being introduced on this.”

In 2018, more people in the U.S. used streaming video services than cable or other paid television services. It was the first time that streaming surpassed the traditional model, according to a March Deloitte report.

As fewer people purchase goods in favor of intangibles like streamed content, states are changing their tax laws, according to Richard Auxier, a research associate at the Urban-Brookings Tax Policy Center. He noted that sales tax historically only covers tangible goods.

And beyond streaming, state tax officials have been looking to boost tax revenue from other services, slapping levies on tanning, landscaping, dry cleaning, pet grooming and more.

Over the past 10 years, Connecticut added 20 additional services to the tax rolls, more than any other state in the country, according to Jackson Brainerd, a senior policy specialist at the National Conference of State Legislatures. He noted that state sales taxes have inched up over the decades, reaching an average of 6 percent today.

“Our current sales tax is designed for a Sears Roebuck economy driven by over-the-counter sales,” Ned Lamont, the governor of Connecticut, said in a budget address last year in support of a streaming tax. “Today, we live in an Amazon economy, which is driven by eCommerce, digital downloads and consumer services. Movie theaters charge a tax, and Netflix should be treated the same.”

Twenty-two states plus the District of Columbia currently tax streamed video or audio media, according to Michael J. Allen, associate commissioner for tax policy in Maine’s Department of Administrative and Financial Services. He testified in the state legislature earlier in February, CNBC reported.

Connecticut’s tax law changed on Oct. 1 relative to “digital goods” – streaming music and video, audiobooks, podcasts, stock photos and eBooks. Previously, the state taxed those services at the 1 percent “computer and data processing service” rate. Now, the state applies the full sales tax of 6.35 percent.

Arizona and Missouri voted to ban such a tax, and five states – Alaska, Montana, Delaware, New Hampshire and Oregon – don’t have sales taxes, Brainerd said.

Bundles and subscriptions can also be a complicated tax issue. Merchants frequently package products together into eye-catching bundles, selling everything from laptops with preloaded software to charcuterie gift baskets. But determining individual items’ tax obligations in the states into which they are sold can be challenging, and putting offerings into bundles only magnifies complexities.