Deep in the Idaho Capitol, a group of Republican senators took a stand for taxpayers, applying additional scrutiny to a rule change that forces a tax on Netflix customers.
To be sure, it was a small win. But it was important. Let me explain.
House Bill 598 serves as the progenitor of this tax hike. That bill, authored and passed last year, tried to straighten out the state tax code’s stance on digital services in the ever-evolving tech economy. The bill’s fiscal note suggested the measure would reduce state revenues by up to $5 million. In other words, it cut taxes. It stopped the taxation of certain “cloud computing” software.
The bill said nothing about companies that “stream” digital content to consumers who pay for that subscription service. Yet, the Idaho State Tax Commission wrote a regulation that says Netflix should be collecting Idaho sales tax from its subscribers.
The House Revenue and Taxation Committee approved the rule earlier this week, but the Senate Local Government and Taxation Committee wasn’t convinced; the panel on Wednesday delayed a decision on the regulation.
Let’s be clear: while the senators take a deeper look, the tax remains on the books. In fact, Netflix has been been charging customers the tax since July 1, the bill’s enactment date, to be safe. Meanwhile, Netflix argued in meetings with the commission that state law just isn’t clear enough to justify the hike.
It’s also important to note a fairness issue here. Netflix, which made the decision to bring a handful of jobs to the state by operating a disc shipping center within our borders, has to pay the tax in line with a U.S. Supreme Court case. Its competitors–Hulu, Amazon Prime and others–don’t have physical operations in the state and don’t have to tax its customers for the same service. Likewise, cable and satellite companies, which are specifically exempt from the tax.
And finally, let’s clear up one other issue. There’s some talk about the Statehouse that this whole thing is not a tax increase. It is.
During testimony in front of the Senate panel, McLean Russell, an analyst for the commission, told lawmakers even he, an enforcer of tax code, didn’t pay the use tax on his Netflix streaming prior to House Bill 598’s enactment.
“If it helps, I didn’t pay tax on my Netflix streaming service before July 1,” Russell told panel members.
There it is. House Bill 598 increased taxes on Netflix and streaming services and the rule confirmed it.
To repeal the tax, lawmakers must reject the commission’s rule. That would be a huge win for taxpayers.