As streaming services continue to be the entertainment mode-of-choice of American consumers and cable viewing has declined over the past several years, cities have tried to impose local franchise fees on streaming services to keep revenues they formerly received from cable providers. In at least 13 states, actions have been taken by local governments to impose their excise taxes and franchise fees on streaming providers. The government’s theories behind these cases are that streaming services use the same communications infrastructures and rights-of-way that are used by cable services. However, governments have found that their position has not prevailed. “It does seem, in a lot of these situations, these are localities going after wishful thinking,” said Fred Nicely, senior tax counsel for the Council On State Taxation. “They assert their laws apply, but they don’t have clear provisions to be able to impose their franchise fees.”1 To date, governments in 13 states have filed suit in both state and federal court, and for the most part, the streaming services have been successful in their motions to dismiss the cases or to deny the claims.2 Prompted by for-profit consulting firms, multiple California local jurisdictions are attempting to sidestep voter approval requirements and claim that existing utility users tax ordinances encompass video streaming services. Potentially, any streaming video content delivered over the internet could be subject to these local utility taxes.
Additionally, two localities have taken a more creative approach to taxing streaming services. The Illinois cities of Evanston and Chicago have successfully imposed their amusement taxes on the revenues of streaming services. Note that the amusement tax is not dependent on using the local infrastructure. In theory, amusement taxes were designed to reimburse the localities for events that would require traffic management or greater-than-normal security protocols. However, the city of Chicago settled with the streaming services,3 and the services agreed to collect the tax. In the case of the city of Evanston, the city council specifically amended its city code to impose an amusement tax on “amusements that are delivered electronically.” The ongoing issue is whether these taxes violate the Internet Tax Freedom Act (ITFA). The city of Chicago won on this issue on a claim of facial discrimination at the appellate court level.4
It would appear that a change in an existing ordinance or a new law would be required for localities to tax streaming services. That brings us to the new measure recently passed by the Senate in Vermont. S. 181 was approved by the Vermont Senate on March 29, 2024. The measure would levy a 5% tax on the gross receipts of streaming services. The proposed purpose of the bill is to raise funding for public service television. The revenue would go into the general fund for the state, with an undetermined amount to be set aside for the funding of public television. Maine’s governor has also expressed an interest in taxing streaming services. She has proposed a supplemental budget that would assess sales tax on audio and visual streaming services. The opposite has occurred in Missouri where taxes on streaming services would be considered exempt under S.B. 872, passed by the Senate on April 4, 2024. Meanwhile in Virginia, Governor Youngkin has declined to sign the Budget Bill, recommending the removal of the proposed expansion of sales tax to include digital products.
This is probably just the beginning of legislation aimed at streaming services. Ryan’s experienced telecom tax team will continue to monitor these developments and report on any new developments. If you have any questions regarding taxes imposed on streaming services, reach out to one of our specialists listed below.
1 As quoted in Bloomberg Law News (October 12, 2021), “Netflix Growing Fight With Cities Over Streaming Money,” by Michael J. Bologna.
2 City of Ashdown v. Netflix, Inc., 52 F.4th 1025 (8th Cir. 2022); City of Lancaster v. Netflix, Inc., 99 Cal. App. 5th 1093 (2024); Gwinnett Cnty. v. Netflix, Inc., 367 Ga. App. 138, 885 S.E.2d 177 (2023); City of E. St. Louis v. Netflix, Inc., 83 F.4th 1066 (7th Cir. 2023); City of Fishers v. DIRECTV, 5 F.4th 750 (7th Cir. 2021); City of Fort Scott v. Netflix, Inc., 2022 Kan. Dist. LEXIS 161; City of Kenner v. Netflix, Inc., 22-466 [La. App. 5 Cir (May 3, 2023)], 366 So. 3d 642; City of Creve Coeur v. Netflix, Inc., 670 S.W.3d 66 (Mo. Ct. App. 2023); City of Reno v. Netflix, Inc., 52 F.4th 874 (9th Cir. 2022); Borough of Longport v. Netflix, Inc., 94 F.4th 303 (3d Cir. 2024); City of Maple Heights v. Netflix, Inc., 2022-Ohio-4174, 171 Ohio St. 3d 53, 215 N.E.3d 500; City of Knoxville v. Netflix, Inc., 656 S.W.3d 106 (Tenn. 2022); City of New Bos. v. Netflix, Inc., 565 F. Supp. 3d 865 (E.D. Tex. 2021).
3 Apple Inc. v. City of Chicago, 2022 Ill. Cir. LEXIS 93.
4 Labell v. City of Chicago, 2019 IL App (1st) 181379, cert denied.
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