Beyond TV and movies: Communications tax for other streaming services
Netflix, Hulu, and Disney+ aren’t the only streaming games in town — at least not when it comes to enforcement of streaming-specific taxes that now extend to services well beyond the traditional “living-room experience.”
If you've ever used a paid app to access fitness classes, from a tax perspective, you’ve used a streaming service. The same is likely true if you’ve paid to join an online certification program, watched a high-school sporting event, or tuned in to a live broadcast from your local church.
Subscription services like these, along with thousands of others, are being closely watched by tax authorities. To auditors, they all fall under the broad category of streaming — and can put companies on the hook for a complex array of specialized taxes.
The problem? Many businesses that offer these services simply don't realize that streaming taxes could apply to them. And yet there are implications for companies across all kinds of industries: sports, fitness, gaming, education, healthcare, religion, and many more.
From interactive home exercise equipment or live-stream gaming to any company providing telehealth services, plus countless companies and institutions in between, thousands of businesses potentially stand to be impacted by streaming taxes.
How to know if you’re responsible for streaming taxes
Just because your company doesn’t look like the typical streaming company making headlines, that doesn’t mean you’re off the hook for the same taxes. Many jurisdictions and tax authorities cast a wide net, with streaming-specific taxes often extending well beyond the typical realm of services centered on delivering TV shows and movies. The burden is on you to understand how your company fits into this picture, and to figure out what sort of tax or documentation responsibility you may have.
When determining if and how your business may be responsible for streaming taxes, there are several key considerations to keep in mind. You can start by asking yourself the following questions:
Do you charge a subscription or transactional fee for streaming services?
Streaming services, in this context, refers to a broad range of providers that allow buyers to stream video and audio content either as on-demand libraries, live events, or a mix of both. While this category certainly includes popular platforms like Disney+ and Netflix, it encompasses many other types and sizes of companies as well.
If you offer a library of on-demand or live content that customers can access by paying a subscription or one-time fee, you’re very likely in the business of streaming. This is an important distinction, since many businesses remain unaware that auditors are likely to consider their content to fall within the streaming category.
Do subscribers pay to access your content for recreation or entertainment?
Maybe you offer an on-demand collection of classes, or perhaps you allow consumers to watch and broadcast user-generated videos. From the restaurant that offers online cooking lessons to the magazine publisher that supplies thousands of hours of original videos to the house of worship that provides a series of live streaming events or a faith-based catalog, a growing number of organizations across industries are leveraging online video to generate revenue.
In each of these scenarios, streaming subscriptions are a key monetization model. And while many of these libraries may not fall into the category of what’s traditionally considered to be entertainment, they’re all drawn into the broader streaming tax universe.
Does your service support collaboration or person-to-person interactions?
Again, many businesses that may be quick to reply no will be surprised to discover that their business-to-business services could in fact be subject to streaming taxes. For example, does your platform make it possible for patients to access on-demand telehealth videos? Those specific components of your offer may be subject to streaming taxes. Do you provide prepackaged online learning and training videos? There’s a good chance these could also be taxable. Even virtual events — conferences, seminars, trade shows, festivals, celebrations, and more — may soon fall into this category as they increase in frequency and attract the attention of tax authorities.
As more industries turn to online alternatives to replace in-person activities, tax jurisdictions will be on the lookout for new entrants into the communications tax space. And, it’s worth noting that some of these could be transactional pay-per-use rather than subscription, but still taxed as a streaming service.
What it means for your business
Streaming taxes are fast becoming a reality that could be costly if overlooked or ignored. After all, if the auditor comes knocking, a lack of knowledge won't make your company any less liable. And no company wants to contend with the penalties and fees that often result from noncompliance.
If you haven’t yet begun to familiarize yourself with this evolving area of communications and streaming-specific taxation, now’s the time to do so. Several states and cities have already put new streaming tax laws in place, and many more are likely to follow their lead.
For example, if you sell to customers in Florida, you'll likely need to be prepared to collect communications tax on streaming subscriptions. In Kentucky, excise utility tax now applies to streaming services, as does an amusement tax in Chicago and local utility user tax in several California jurisdictions. In other states including Illinois, Kansas, Maine, Massachusetts, and Utah, new laws for streaming taxation are under consideration.
Legislators will continue to look for new ways to tax increasingly popular online and nontraditional services. Even if streaming isn’t your primary offering — say, for instance, you promote it as an extra perk or as part of a broader bundled offering similar to Amazon Prime Video — these services can still come under scrutiny.
The most important thing to remember is that there are thousands — yes, thousands — of tax jurisdictions that could be closely watching the streaming industry at any given time. The more prominent these services become, the more motivated state and local authorities will be to tax them.
For this reason, it’s critical to make sure your tax software is equipped to help keep you compliant — both with current streaming tax laws, and with new ones as they’re passed.
Looking for additional information you can use to manage streaming taxes?
Here are several resources to get you started:
- Check out our communications tax automation software to learn how you can calculate complex streaming taxes with ease
- Visit our resource center for insights you can use to get (and stay) ahead of evolving communications tax challenges
- Get in touch with a streaming tax specialist to get answers to your most pressing questions
It’s here — Read Avalara Tax Changes 2023
Review tax updates and trends, plus get a forecast of what’s to come
Stay up to date
Sign up for our free newsletter and stay up to date with the latest tax news.