Idahoans may finally have a dollar figure to pair with the Netflix tax hike authorized by the House Revenue and Taxation Committee this year: $1.2 million.
And that could rise if lawmakers decide to seek another tax hike on cable and satellite providers.
The tax hike estimate comes from Rep. Ron Nate, R-Rexburg, a newly elected lawmaker and economics professor at Brigham Young University-Idaho. The figure might be the most accurate estimate observers ever have, as the Idaho State Tax Commission cannot release data on specific taxpayers like Netflix.
It’s an important number, though, because it reflects the financial consequences of the commission’s decision to tax Netflix and other entertainment subscription services like it.
The commission decided to tax those services, including Netflix, Pandora, Amazon Prime, Spotify and Hulu Plus, among others, after a 2014 bill intended to clarify how the state’s handles those items left room for interpretation.
In its interpretation, the commission raised direct taxes by $1.2 million on Idahoans.
The House Revenue and Taxation Committee approved the tax hike earlier this year, but the Senate Local Government and Taxation delayed action on the measure. Senators wanted more time to study the issue before proceeding.
Even if the Senate rejects the rules, they stay in place until lawmakers write a bill to specifically change the commission’s guidelines.
Legislators face a tough dilemma on the issue because last year’s law and the commission’s interpretation create huge inequality gaps among companies in that industry.
First, the law, written by House Majority Leader Mike Moyle, R-Star, exempts cable and satellite companies from taxation, even though their services bear nearly identical resemblance to Netflix and other streaming providers. Plus, many cable and satellite companies offer streaming applications for subscribers’ phones or tablets.
Next, the U.S. Supreme Court’s 1992 Quill decision complicates matters further. That decision said states may only tax companies operating a physical facility in a given state.
For Idaho, that means only Netflix, which operates a 12-person DVD shipping facility somewhere in the Gem State, must attach the 6 percent sales tax to customers’ bills.
Other streaming providers that don’t operate physically in Idaho, like Hulu Plus or Amazon Prime, don’t have to burden their customers with that.
That hardly means Idahoans who use Hulu Plus or Amazon Prime don’t have to pay - sort of. The tax commission demands residents pay the use tax on those services, which is voluntarily declared on yearly income tax forms. One tax commission official admitted auditors and collectors aren’t checking use tax charges for accuracy.
In short, Idahoans don’t have to pay it. And that’s a state-imposed competitive disadvantage for Netflix.
Nate estimated the tax commission might collect $100,000 for subscriptions subjected to the use tax.
There’s no word yet on how lawmakers will address this. Sen. Jeff Siddoway, R-Terreton, told IdahoReporter.com there are ongoing talks about the tax hike, but wouldn’t hint about progress.
“We have to do this in a way that’s fair and equal,” Siddoway said. “Everyone is going to protect their turf and we get that.”
Fairness and equality could mean more out of Idahoans’ pockets, though. If lawmakers want equality, they may hike taxes on cable and satellite providers to get there. Or, they could exempt services like Netflix, Hulu and Amazon Prime.
Again, Siddoway didn’t endorse ideas, but did drop a sizable hint. “I think that a majority of our committee members want to tax entertainment,” the senator said.
On the House side, Revenue and Taxation Committee Chair Gary Collins, R-Nampa, won’t rule out any fixes for the problem. “I haven’t locked in one way or the other,” he said.
Asked about progress, he too declined to give specifics. “There are some things going,” he said. “I don’t know if you call that movement.”
States differ widely on taxing streaming. Florida and Texas tax it under different definitions, while California classifies the service as non-tangible property and exempts it from taxation.
Note: Nate is a member of the Idaho Freedom Foundation’s Board of Scholars. The Idaho Freedom Foundation publishes IdahoReporter.com.
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