2016 has proven to be a crazy year.
High-profile celebrity deaths, huge political upsets in the United State and the United Kingdom and now…a Netflix tax?
According to Business Insider, streaming services like Netflix and Hulu are growing much faster than traditional cable. So fast, these services are projected to grow to $7 billion in revenue this year alone.
And local governments have taken notice.
In California, the Pasadena city council announced a 9.4 percent tax on streaming video services. The council is categorizing it as a utility, so it can be taxed like water, electricity or sewage. And unfortunately for consumers, it means that streaming services would be taxed twice: the first as a sales tax and then a second time as an Internet tax.
Currently, the city of Chicago is being sued for charging a 9 percent tax on video streaming.
Pennsylvania is charging a 6 percent sales tax on everything from apps to downloads to help close a $1.3 billion budget gap. Those new taxes were part of a revenue package passed by the legislature and signed by Gov. Tom Wolf to fill a $1.3 billion hole in Pennsylvania’s new $31.5 billion budget.
But here’s the problem: these cities and states could be violating federal law by taxing streaming services like Netflix.
In 2015, the House approved H.R. 235. The Permanent Internet Tax Freedom Act, “amends the Internet Tax Freedom Act to make permanent the ban on state and local taxation of Internet access and on multiple or discriminatory taxes on electronic commerce.”
The actual tax in question is a tax on Internet net access, which is not the same as a sales tax on products bought over the Internet: state and local governments may still impose a sales tax on online purchases.
But, with Netflix or Hulu, there is no tangible product that one is purchasing. The product can only be used by having access to the Internet, which would fall under the protection of H.R. 235.
Where will the line be drawn for popular services like Netflix and Hulu to other websites like YouTube and Pandora? Will we be taxed every time we try to stream music from different electronic devices or in our cars?
As local governments continue to impose these taxes because of their spending shortfalls, Americans may be finding out the answers to those questions sooner rather than later.