The Idaho State Tax Commission approved the tax hike over the summer after a law passed last year failed to define how the agency should handle taxes on streaming services like Netflix, Hulu, Amazon Prime, Spotify or Pandora, among others.
The tax hike is worth at least $1.2 million, economist and college professor Ron Nate, a Republican House member from Rexburg, revealed this week.
Members of the House Revenue and Taxation Committee approved the rule earlier this year, but senators decided to hold it due to the inequity the rule creates.
This tax targets Netflix in two manners: First, it fails to impose taxes on cable and satellite providers, who provide essentially the same service as Netflix and other video subscription services.
Next, a 1993 U.S. Supreme Court ruling forbids states from taxing online retailers without a physical footprint in a state. Because Netflix operates a DVD shipping facility somewhere in Idaho, it must attach a charge for the 6 percent sales tax to customers’ bills.
Services like Amazon Prime and Hulu are subject to the tax, but the customers themselves must voluntarily report the amount on annual income tax returns. In short, no one pays it.
Burgoyne and Bayer, members of the Senate Local Government and Taxation Committee, could prove critical to killing the Netflix tax or preventing tax hikes on cable and satellite companies.
“Times are still tough,” Burgoyne said. “In terms of raising taxes, it’s not a good time to be doing that, either.”
Bayer focused on the inequality of the commission’s decision. “You want to have equitable tax policy,” he said. “You don’t want to have people looking at different monitors and saying ‘Guess which one has a tax liability and which one doesn't.’”
Committee chair Jeff Siddoway, R-Terreton, told IdahoReporter.com earlier this week wants fairness, too.
That might leave legislators two options: a tax hike on cable and satellite customers, which could be multi-million dollar proposition. Or, lawmakers could exempt Netflix and companies like it.
Siddoway and House Revenue and Taxation Committee Chair Gary Collins, R-Nampa, wouldn’t hint at which way things might go, but confirmed there are ongoing talks about the issue.
Bayer struggles with the tax burden attached to Amazon Prime and Hulu Plus customers. In committee testimony, a commission official admitted his agency isn’t auditing Idahoans for those taxes, but that’s not enough for Bayer.
“That does not buy me any comfort,” he said, expressing concern the commission might switch that position in the future, which could cause significant problems. “I take that very seriously.”
Gov. Butch Otter himself has advocated for collecting sales taxes on all Internet purchases. If that happens in coming years, Idahoans would have to pay taxes on all streaming subscriptions -- that is, if legislators don’t repeal the rule.
“That will be stringently enforced,” Bayer warned.
Taking a populist bent, Burgoyne said the commission’s tax hike, while entirely legal, gives residents a raw deal.
“The regular person isn’t reading notices of rulemaking from the tax commission,” he said. “You can’t read everything, and that’s the problem.”
How potential legislation treats all industry members could decide its fate.
“It needs to be fair and it needs to be consistent,” Burgoyne said. “Why is Netflix going to be treated any differently?”
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