More States Taxing Streaming Services Like Netflix and Hulu

On January 1, 2019, sales of streaming service subscriptions became subject to tax in Iowa, Washington, D.C., and the Canadian provinces of Québec and Saskatchewan These areas join a growing list of jurisdictions now taxing the sale of content consumed through Amazon, HBO, Hulu, Netflix, Spotify, and other streamed service providers.

Fewer North Americans tune into traditional television and cable these days, and it’s harder to find an American or a Canadian who doesn’t stream at least some shows or movies. Likewise, despite the vinyl revival, there’s a rising generation for whom music exists solely via apps and the internet.

This shift has caught the attention of legislators and tax authorities, many of whom are eager to cash in on the trend. Or rather, stop the bleeding: Digital goods and services are generally subject to tax when sold in their non-digital forms, so the change in consumer habits has a real impact on tax revenue.

Yet although sales tax rates, rules, and regulations change frequently, sales tax law is often slow to respond to major economic shifts. Sales of services generally outpace sales of goods these days, but most services are still exempt in most states in the U.S. Similarly, though digital goods and services such as Software as a Service (SaaS) and streamed music and movies are making up an ever-larger portion of the market, laws often fail to address them.

Furthermore, there’s usually resistance to taxing previously untaxed goods and services, even those that are new to market. Thus, in 2015, then Canadian Prime Minister Stephen Harper made a mock horror movie about how his opponent Justin Trudeau wanted Canadians to “pay more for Netflix, YouTube, and other digital streaming services” and insisted, “We are 100% against a Netflix tax.” Once elected, Prime Minister Justin Trudeau also stressed his opposition to “imposing the sales tax on foreign digital platforms.”

Some provincial governments appear to be of a different mind. In March 2018, Québec caused an uproar when it became the first Canadian province to tax non-resident (foreign) providers of digital services to Québec consumers (the tax took effect January 1, 2019). Yet there was little fanfare when a similar tax took effect in Saskatchewan on the same date — perhaps because no one knew it was coming.

According to The Globe and Mail, “Saskatchewan’s approach was far more low-key, leaving consumers to discover the change this month as they receive their Netflix bills.” The government made no announcement, calling it “basically a housekeeping item in the legislation.” James Parker, a spokesman for the Saskatchewan cabinet, emphasized that this isn’t a new tax but rather one that “brings Netflix [an American company] in line with other streaming services that collect PST (provincial sales tax) from their Saskatchewan customers.”

Down in the United States, the District of Columbia and Iowa join Florida, North Carolina, Pennsylvania, and Washington in taxing sales of streamed content. These sales are also subject to some local taxes, as in Chicago, Illinois, several cities in California, and Loveland, Colorado.

Maine came close to adopting a “Netflix tax” in 2017 but opted against it. Kentucky tried to tax streaming services but was blocked from doing so, while a proposal to tax a variety of services died in Louisiana. Some lawmakers in Virginia want to tax streaming services, but more don’t. And both Arizona and Missouri banned the taxation of services, including streamed services, not already subject to tax.

Taxing streaming services remains somewhat contentious in Canada and the United States, but they’re being taxed in a growing number of countries, including India and South Korea. And the more people rely on streaming services to satisfy their entertainment needs, the more they’ll come under scrutiny for taxation.

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