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Idaho lawmakers affirmed the first in what could be a series of tax increases set to come about this legislative session, approving an administrative rule change that forces some companies like Netflix to charge customers sales taxes.
The move comes less than a year after lawmakers passed 2014’s House Bill 598, a measure that sought to bring some clarity for taxing digital products and services. That bill, though, led to some ambiguity for companies.
Did companies like Netflix need to charge customers an extra 6 percent for streaming services? The Idaho State Tax Commission, tasked with enforcing the state’s tax statutes, said yes.
Most members of the House Revenue and Taxation Committee agreed Monday, approving a commission rule forcing companies that have a physical presence in the state to charge Idaho’s 6 percent sales tax.
Only Reps. Greg Chaney, R-Caldwell, and Heather Scott, R-Blanchard, voted against the measure.
The rule change applies to those companies that offers online subscriptions to digital music, movies, video games or books.
During public meetings last year, commission officials said only Netflix weighed in on the issue, challenging the state’s notion that they should force customers to pay. No one from Netflix showed up at the Capitol Monday to oppose the rule change.
Because of the physical presence requirement brought about U.S. Supreme Court’s Quill decision in 1992, some online subscription services will pay the tax, while others will not. Netflix, which apparently operates a shipping hub for its DVD-by-mail division in the Gem State, will charge customers the tax. Others, like Hulu and Amazon Prime, probably don’t have to add the tax to customers’ bills.
McLean Russell, the presenter from the Idaho State Tax Commission, couldn’t give IdahoReporter.com a projected fiscal impact for the Netflix tax hike.
He did contend, though, the rule change isn’t a tax increase because Idahoans are already subject to the state’s use tax provisions. That tax mandates residents pay the state’s sales tax rates on goods purchased outside of Idaho if the items weren’t taxed.
The use tax, though, goes by the honor system, though, and officials believe the state misses out on millions of dollars in tax revenue each year because of how Idaho collects it.
Interestingly enough, House Majority Leader Mike Moyle, R-Star, projected last year House Bill 598 would take between $2 million and $5 million from general fund revenues.
Chaney voted against the rule change because he felt Moyle’s bill didn’t clearly enough outline the Legislature’s intent for taxing companies like Netflix.
“I felt the tie should go to the taxpayers,” Chaney said. “It just seems concerning, especially where the economy is getting more digitized, more globalized.”
The Caldwell lawmaker also wonders why legislators jumped at taxing these digital services, as Idaho doesn’t tax most services, for things like haircuts or oil changes.
“It is a service, so I find that odd,” Chaney said.
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