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Netflix Exempt from Kentucky Taxes


 Not subject to telecommunication taxes in Kentucky.

Update 9.22.16: Unless the Department of Revenue wins its appeal of the Netflix case, Netflix streaming services will remain exempt from the state's Gross Revenues Tax, Excise Tax, and the Utility Gross Receipts License Tax. However, as the Department explains in a December 2015 Sales Tax Facts, "This litigation does not affect or encompass the application of sales and use tax." Kentucky sales tax applies to "leases or rentals of tangible personal property and digital property to consumers" (Sales Tax FAQs).

After much deliberation, the Kentucky Board of Tax Appeals has determined that Netflix streaming services are not subject to the state’s three telecommunications taxes: Gross Revenues Tax, Excise Tax, and the Utility Gross Receipts License Tax.

The Kentucky Department of Revenue imposed these three taxes upon the streaming services offered by Netflix in Kentucky; Netflix reported and paid the taxes for the period June 2012 – August 2012 and then sought a refund.

The Kentucky Board of Tax Appeals was tasked with determining “whether the legislature manifested an intention to include streaming services in the excise taxation scheme.” Netflix, broadcast TV, and cable TV all provide streaming video service and movie and television programming. At issue is this: “Whether the Netflix ‘programming,’ is ‘generally considered comparable to programming’ provided by a television broadcast station.”

The Board had to consider if the streaming services provided by Netflix fall “within the Kentucky statute’s definition for ‘multichannel video programming.’ If so, “then Netflix would be a provider of ‘multichannel video programming’ for purposes of Kentucky tax law, regardless of its status under federal law for regulatory purposes.”

Kentucky statute does not define the term “programming,” so the board relied on the dictionary definition and concluded that, although there are similarities between the services provided by broadcast TV stations and cable companies, the similarities are not significant enough to merit taxation. The following reasons were among those provided:

  • Netflix does not provide any live programming.
  • Netflix does not provide any linear programming.
  • “The presentation of streaming video programming to the consumer differs from the presentation of broadcast TV/cable programming to the consumer.”
    • No television is required to view Netflix programming.
    • Netflix service never becomes part of the cable package or bundle for sale to the end consumer, even when Netflix has a licensing agreement with a cable company for use of its app on the cable box.
  • “The on demand TV feature is only an incidental part of the broadcast and cable TV services programming, and is not enough to make streaming services ‘generally considered to be comparable’ to the programming of broadcast/ cable TV within the meaning of the first portion of the statute.”

Please read the Board of Tax Appeals File Nos. K13-R-31 and K13-R-31 for more details.

If the case is appealed, the issue of local taxation could arise, as could the federal regulatory treatment of digital streaming services.

Nationwide, there is much debate about how the services offered by Netflix and similar businesses should be taxed. For example, Chicago’s amusement tax was recently extended to services provided by Netflix, and taxpayers have already filed suit against the tax. And controversy is not limited to the United States: Canadian Prime Minister Stephen Harper is “100% against a Netflix tax.”

Learn more about sales tax on digital goods and services.

photo credit: Day 81 via photopin (license)


Gail Cole
Avalara Author
Gail Cole
Gail Cole
Avalara Author Gail Cole
Gail began researching and writing about sales tax in 2012 and has been fascinated with it ever since. She has a penchant for uncovering unusual tax facts, and endeavors to make complex sales tax laws more digestible for both experts and laypeople.