Video-Streaming Companies See the “Netflix Tax” Going into Effect Around the Country to the Dismay of “Cord Cutters”

by Butler Snow LLP

Butler Snow LLP

If you are like many other Americans, then you may have “cut your Cable TV cord” and turned to streaming movies and shows through your accounts with Netflix, Amazon Prime, Hulu, HBO GO, SlingTV, or other video streaming tech companies. However, many “House of Cards” and “Orange is the New Black” lovers across the country will likely have to pay a tax before they log in to their Netflix account.

This tax, called a “Netflix Tax” in popular culture, is often promulgated under existing amusement taxes, sales taxes, and utility taxes. The Netflix Tax is an effort by cities and states across the country to capture some of the revenue lost when cord cutters flock to tech companies that provide video-streaming services. America’s largest cities were taking in an average of $6.12 in monthly taxes and fees at an average tax rate of 11.69 percent. Chicago, for example, was taking in $3.75 in monthly taxes and fees with a tax rate of 7.16 percent per cable subscriber. While every cable subscriber has not cut the cord, the rate of attrition is picking up for the pay-TV industry and cities and states are losing revenue.

Chicago was one of the first cities to implement a Netflix Tax. On June 9, 2015, the City of Chicago’s Finance Department extended the city’s 9 percent amusement tax to cover not only the services provided by Netflix, Hulu, and the like, but also to audio and music streaming services such as Spotify and to gaming services like Xbox Live. The amusement tax was previously applied to sales on sporting events and concerts. The new tax, higher than the city’s cable services tax, is expected to generate $12 million annually.

Pennsylvania was one of the first states to adopt a Netflix Tax. As of August 1, 2016, Pennsylvania cord cutters will have to pay a Netflix Tax under a series of new taxes extended to digital downloads and video streaming services like Netflix and Hulu. The Pennsylvania Netflix Tax is triggered when a customer uses an account with a Pennsylvania billing address. The tax applies to music, e-books, apps, online games, and ringtones, but excludes magazine subscriptions, newspaper subscriptions, and digital versions of the Bible.

In early 2015, Southern cord cutters watched as Alabama Department of Revenue officials briefly advocated for extending Ala. Code § 40-12-220 to the rental of digital media products, including Netflix subscriptions. The Alabama Legislative Council, a body made up of representatives from both the Alabama House and Senate, signaled its disapproval of the proposed Netflix Tax.

Pasadena, California may be the newest city to adopt a Netflix Tax. City officials recently released memos addressing a potential adoption of a “video services” tax in January 2017 under Pasadena’s utility user tax. The utility tax is defined as a “tax collected for the City based on a percentage of electric and water charges,” but city officials have ruled that the city could tax video streaming services at the same rate as cable services through a new interpretation of the tax. This ruling states that the utility user tax applies to “video programming” regardless of the technology used to deliver such programming.

It would allow the city to tax Netflix at a rate of 9.4 percent, which would add almost $1 per month to a standard Netflix subscription.

According to the Los Angeles Times, there are about forty-five other California cities with utility tax codes that might allow for a Netflix Tax, including Sacramento, Culver City, Glendale, and Santa Monica, with rates ranging from 1 percent to 11 percent of the bill.

Other states, such as Idaho, also are contemplating a Netflix Tax.

Internet advocacy groups and cord cutters question the legality of these measures.

On September 9, 2015, Chicago Illinois residents filed suit for declaratory and injunctive relief against the City of Chicago. The Chicago cord cutters argue that the Chicago Finance Department violated the federal Internet Tax Freedom Act, 47 U.S.C. § 151 note, enacted just last year in 2015, by requiring cord cutters to pay more for Amazon Prime, Netflix, Hulu, and Xbox Live. These cord cutters argue that the Chicago Netflix Tax treats streaming services differently than DVD-by-mail services and imposes a higher rate than live forms of entertainment.

The Internet Tax Freedom Act provides that no state or political subdivision of a state may impose taxes on internet access or multiple or discriminatory taxes on electronic commerce.

The Act defines a discriminatory tax to include:

1) taxes that are not generally imposed and legally collectible by a State or a political subdivision on transactions involving similar property, goods, services, or information accomplished through other means;

2) taxes that are not generally imposed and legally collectible at the same rate by such State or such political subdivision on transactions involving similar property, goods, services, or information accomplished through other means, unless the rate is lower as part of a phase-out of the tax over not more than a 5-year period; or

3) taxes that  impose an obligation to collect or pay the tax on a different person or entity than in the case of transactions involving similar property, goods, services, or information accomplished through other means.

Whether these Netflix Taxes are considered discriminatory taxes under the Internet Tax Freedom Act will likely be an issue tech companies will need to keep an eye on.

Analysts estimate that the pay-TV industry lost 566,000 subscriptions from April to June 2015. This trend continued into 2016, with 812,000 subscribers leaving their pay-TV services in the second quarter alone.

As cord cutters continue to subscribe to their services, video streaming tech companies will need to be aware of Netflix Taxes veiled in existing utility, sales, and even amusement taxes. Tech companies and their growing constituency will likely continue to encounter these kinds of taxes until sales tax laws and regulations are updated or enacted to reflect the ever-changing landscape of commercial internet law.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Butler Snow LLP | Attorney Advertising

Written by:

Butler Snow LLP

Butler Snow LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at:

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.