Netflix taxes coming soon to a screen near you

Netflix taxes coming soon to a screen near you

The way we consume entertainment has changed dramatically. While the ancient tradition of live theater lives on and movies theaters still limp along, Americans are now more likely to stay home and stream shows and movies than head out the door.

It takes time to adapt tax laws to technological changes. But, as the examples below illustrate, laws are changing. Cities, counties, and states (and provinces) are finding ways to tax digital streaming services: some as an amusement, some as a sale, and some as a utility.


In 2015, Chicago became the first city of size to tax online streaming services. The tax was immediately challenged. On May 24, 2018, the Circuit Court of Cook County, Illinois, ruled the extension of the city’s 9 percent amusement tax to internet-based streaming services such as Netflix does not violate the federal Internet Tax Freedom Act, the United States Commerce Clause, or the uniformity clause of the Illinois Constitution, nor represent an extraterritorial application of Chicago’s taxing power.

According to the City of Chicago’s Amusement Tax Ruling #5 (issued June 9, 2015), the amusement tax applies in part to “charges paid for the privilege to witness, view or participate in amusements that are delivered electronically,”  including “watching electronically delivered television shows, movies or videos, listening to electronically delivered music, … and participating in games, online or otherwise.” The tax is sourced to the residential or primary business street address in Chicago, as reflected in the credit card billing address.

The recent ruling from the Circuit Court of Cook County is a victory for Chicago, but it doesn’t mark the end of the legal battle over the tax. The ruling is expected to be appealed, and another case is still making its way through the courts. On June 5, 2017, the Entertainment Software Association (ESA) filed a suit challenging what it calls Chicago’s “illegal and harmful expansion of its existing Amusement Tax to include online video game play occurring through streaming and subscription services.” That case has yet to be resolved.


Tax doesn’t currently apply to sales of iTunes, Netflix, Spotify, and other non-Canadian streaming services in Canada because America’s northern neighbor doesn’t tax digital content service providers that don’t have a physical presence in Canada.

That’s set to change in Québec. The francophone province’s new budget calls for “a tax fairness action plan” that will “ensure fairness between Québec retailers and retailers outside of Québec.” The Québec Economic Plan provides for “the implementation of measures making the collection of the Québec sales tax [QST] mandatory on digital services and incorporeal property sold from outside Québec.” It takes effect January 1, 2019, and is expected to generate approximately $155 million by the end of the 2022–2023 fiscal year.

At present, there are no plans to tax these services in the other Canadian provinces. During his tenure, former Canadian Prime Minister Stephen Harper said he was “100% against a Netflix tax — always have been, always will be.” Despite repeated calls to tax foreign streaming services the same as Canadian streaming services, his successor Prime Minister Justin Trudeau says he, too, is firmly opposed to taxing these services.

Could that change if Netflix develops a physical presence in Canada? Time will tell. The U.S. company is in the process of developing its first permanent production presence outside of the United States — Netflix Canada — and has committed to investing $500 million (Canadian) in Canadian content, including French content.

In the meantime, the call to tax foreign streaming services is unlikely to be muted in Canada. Policy analyst Rosalie Wyonch of the C.D. Howe Institute, says “Quebec is pushing the envelope in Canada for correcting competitive issues. There is no good economic reason not to shift our policy.”

California and Iowa

A great deal of controversy has surrounded the application of the utility users tax (UUT) to streaming services in numerous California cities, including Pasadena.

A bill calling for a five-year moratorium on “any tax on the sale or use of video streaming services or any utility user tax on video streaming services” was introduced in January 2017 but died in committee in January 2018. Assemblyman Sebastian Ridley-Thomas, sponsor of the bill, says more information is needed: “the potential impact of a moratorium on local revenue, the issue of fairness between types of service providers and whether providers are complying in places where the tax may already apply.”

Sales tax is also being extended to online streaming services in Iowa, starting January 1, 2019. These taxable services include on-demand video and pay-per-view. Iowa will also start taxing digital audio works (e.g., music and ringtones), digital audiovisual works, digital books, information services, and Software as a Service.

The rest of the world

Canada and the United States aren’t the only countries grappling with if or how to tax the online streaming services.

Japan, New Zealand, Russia, South Africa, and Taiwan tax streaming services by foreign companies. Australia extended its goods and services tax (GST) to streaming services in July 2017, inspiring Singapore to do the same by 2020. Argentina starts taxing sales of digital services on June 27, 2018. And after Brazil passed a law to tax streaming services in December 2016, Rio De Janeiro and Sao Paulo introduced similar taxes at the local level.

Though such taxes continue to be contested, the trend is moving toward taxation. The European Union recently upheld a German levy on Netflix and similar streaming services “to help fund German-language films and television programs.”

How states and localities tax digital goods and services and other products is always changing. Learn more.

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