In December 2020, the Colorado Department of Revenue (DOR) amended its tangible personal property rule to clarify that the method of delivery doesn’t affect taxability. Amended Rule 39-26-102(15), which took effect January 30, 2021, provides five examples of taxable methods used to deliver tangible personal property.
- Purchaser buys a movie on a VHS tape. Sales tax is due on the purchase price of the movie.
- Purchaser buys a movie on a compact disc. Sales tax is due on the purchase price of the movie.
- Purchaser buys a movie through the internet and then downloads the movie to the purchaser’s computer. Sales tax is due on the purchase price of the movie.
- Purchaser buys a movie, which purchaser accesses through an internet browser. Purchaser does not save a copy of the movie to purchaser’s computer. Sales tax is due on the purchase price of the movie.
- Purchaser pays a monthly subscription fee, which allows purchaser to select and stream movies and television shows from a library of available titles. Sales tax is due on the monthly fee.
A few months later, the Colorado Legislature passed a law codifying the DOR’s amended rule. Under HB 21-1312, which took effect July 1, 2021, “‘tangible personal property’ includes digital goods. The method of delivery does not impact the taxability of a sale of tangible personal property.” The bill defines “digital goods” as “any item of tangible personal property that is delivered or stored by digital means, including but not limited to video, music, or electronic books.”
While you’d be hard pressed to find a VHS tape for sale today, approximately 99% of American households subscribe to at least one streaming service. Amended Rule 19-26-102(15) and HB 21-1312 make clear that Colorado sales tax applies to streaming services sourced to the state — as of January 30 and again as of July 1, 2021.
But the sales tax dispute between Netflix and Colorado started long before then.
History of Netflix v. Colorado
In 2013, Netflix requested a private letter ruling from the Colorado Department of Revenue to clarify that its streaming services were not tangible personal property subject to Colorado sales tax. The DOR did not provide the requested ruling, but on August 20, 2013, it issued a general information letter at the request of another company.
GIL-13-020 explains that the Colorado Legislature excluded electronically delivered computer software from the definition of tangible personal property effective July 1, 2012, but the new definition didn’t alter the tax treatment of digital goods. Therefore, the DOR “will continue treating the sale of electronically delivered goods, such as music, movies, and books, as taxable sales of tangible personal property.”
In 2015, the DOR held Netflix liable for nearly $8.5 million in uncollected sales tax and penalties. It then abated the assessment so that it could address the issue via departmental rule. These things take time. As noted above, the amended rule took effect in January 2021.
According to a Colorado Court of Appeals case summary from 2025, Netflix remitted sales tax collected on streaming services sold during the following periods.
- January 2021, before Amended Rule 39-26-102(15) was in effect
- March 2021, after Amended Rule 39-26-102(15) took effect but before the enactment of HB 21-1312
- July 2021, after HB 21-1312 took effect
Netflix then requested a refund of the tax paid. The DOR denied the refund request, and in 2023, Netflix appealed to the District Court.
Netflix argued that its subscriptions services are not taxable because they don’t meet the definition of tangible personal property. The company also argued that the amended rule and statute violated the Taxpayer’s Bill of Rights (TABOR) because the state implemented a new tax or tax policy change without voter approval.
The District Court agreed with Netflix that streaming services were not tangible personal property. It did not address the TABOR issue.
The DOR appealed to the Appellate Court, which considered the intent of Colorado’s original retail sales tax law.
In July 2025, the Appellate Court ruled in favor of the state. “The threshold question at the heart of this dispute is whether Netflix subscriptions are ‘tangible personal property’ under the 1935 version of the sales tax statute. We conclude that they are.” The court decided the phrase “corporeal property” encompasses all things perceptible to any of the bodily senses, not just things with a physical body.
Netflix appealed to the Colorado Supreme Court, and in March 2026, the Supreme Court agreed to hear the case. But before the Supreme Court could do so, the two parties signed a joint stipulation to dismiss the case with prejudice. (Hat tip to Law360.)
News of the settlement broke on July 28, 2026, during the Multistate Tax Commission’s annual conference. Details of the settlement haven’t been released, but Josh Pens, Director of Tax Policy at the Colorado Revenue Department, reportedly told the MTC’s Uniformity Committee that the Court of Appeals ruling, which held that streaming is tangible personal property under the 1935 Emergency Sales Tax Act, will stand. (Another hat tip to Law360.)
”Phil Horwitz, a state and local tax principal at Ryan, LLC, says the Court of Appeals opinion will likely settle the matter unless another taxpayer decides to challenge Colorado’s existing interpretation or the new software law that takes effect on January 1, 2027.
“The Colorado Netflix case had the potential to undo both the underlying statute and the post-2027 statute because neither statute was sent to a vote of the people to overcome TABOR. However, that door appears to be rapidly closing. We may yet see a challenge to the 2027 software change, but I think the Netflix opinion will be a stumbling block for that case as well.
