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Netflix challenge pushes “streaming” tax to state level

Loveland may only be a town of 79,000 inhabitants but the city recently took on Netflix by sending a sizable tax bill. Although the city ultimately backed down on the streaming service’s bill, widespread and aggressive efforts by state and local tax authorities to collect sales tax in gray areas continues. 

Last year’s tax audit in northern Denver-area city of Loveland revealed Netflix hadn’t been collecting from its Loveland customers and remitting sales tax to the city. The city of Loveland collects a 3 percent sales tax on taxable transactions. According to the Reporter-Herald’s Julia Rentsch, the city assessed Netflix a bill for taxes due during the previous three years of $85,000. Add in fines and interest and bill climbed to more than $116,000.

Netflix pushed back. In a complaint to the city challenging the tax bill, Netflix contends that both city and state law exempt the streaming service from taxation, but says its DVD rental service is not exempt.

The city’s response was to rescind the tax assessment, return the deposit Netflix made to stop incurring interest, and dismiss the complaint. But the city asked the state to decide whether Colorado cities may tax online streaming service subscriptions going forward, signaling that Loveland isn’t done pushing its agenda.

The takeaway

The tax disagreement may ultimately result in a statewide ruling on whether Colorado cities may levy sales tax on online content streaming subscriptions, which are becoming more prevalent as increasing numbers of consumers cut the cable cord in favor of online experiences.

Aggressive city sales tax efforts like this continue. Loveland, for example, began assessing an additional 3 percent lodging tax on the city’s Airbnb rentals as of Nov. 1, despite the absence of a short-term rental tax code. A new agreement signed between the city and the short-term vacation rental site helped codify a portion of the vacation rental sharing economy previously unregulated. Under the agreement, Airbnb will do the tax collection on behalf of the property hosts. In total, 11 Colorado jurisdictions have lodging tax agreements with Airbnb.

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Judy Vorndran can be reached at jvorndran@taxops.com or 720.227.0093. Follow Judy on LinkedIn.

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