A Los Angeles assemblyman introduced a bill on Feb. 3 blocking taxes on streaming video services in California until 2023.
AB 252 would halt the so-called “Netflix tax” dozens of cities in Southern California and throughout the state have been contemplating over the last year.
“I’m not saying they shouldn’t pay taxes, but we should be thoughtful about how it is applied,” said Assemblyman Sebastian Ridley-Thomas, the author of the bill. “This isn’t a break, this is an opportunity to get to the table of negotiations and figure out what makes sense in taxation on the internet and technology.”
Pasadena ended up in the spotlight when an administrative ruling suggested the city would tax streaming services under their Utility User Tax, a voter-approved measure that tacks extra fees on cable, phone, and general utilities. Pasadena’s 9 percent tax rate would have resulted in a less than $1 surcharge for the average Netflix user, but the city backed away from the idea shortly after the ruling became public.
“It’s still under review,” said William Boyer, a Pasadena spokesman. “We’re looking to see how this plays out, not necessarily for Pasadena, but in California and throughout the country.”
At least 45 other cities, including San Bernardino, Glendale, Culver City and Huntington Beach, have been advised they too could tax their residents’ online viewing using existing tax rates for cable providers, according to a listing from MuniServices, the company helping those municipalities collect their taxes.
Voters in those cities approved open-ended language regarding taxing “video” services in some cases roughly a decade ago that is now being used for this new interpretation. In Pasadena, an amendment to the UUT ordinance notes the city can tax video service suppliers “whatever their technology.”
“There is no one advising the cities to do this, they’re simply saying you have the authority to do this under what your voters’ approve,” said Mike Madrid, a spokesman for MuniServices. “We don’t know of any jurisdiction that has gotten beyond that discussion phase.”
Madrid said Ridley-Thomas’s bill is too vague and doesn’t appropriately provide framework for how cities, the industry and the state should come up with more appropriate means of taxation before the freeze sunsets in 2023. The bill also gives streaming providers a competitive benefit over cable companies during that time.
“It’s extremely nebulous at this point,” Madrid said.
Ridley-Thomas said his bill is intended as a “dialogue starter.” Moving forward too quickly may hurt consumers and innovation, he argued.
Part of those discussions should include creating uniformity across the state, instead of each jurisdiction deciding their tax rate, which currently ranges from 4 percent to 11 percent depending on where you live. It’s also unclear how mobile and having access to Netflix outside of your home city would be captured in the taxing scheme.
“I think it might create more confusion and undue burden on consumers than we would anticipate,” he said.
The Howard Jarvis Taxpayers Association called the tax “very suspect” and questioned the legality of the addition. The Internet Association similarly has opposed the tax.
“We’re still reviewing the bill, but our position on this issue remains the same: websites and apps are not utilities and should not be taxed like electricity and water,” said Robert Callahan, executive director of the Internet Association’s California office, in a statement.
Netflix declined to comment on the legislation, but a spokeswoman for Los Gatos-based streaming giant told the San Jose Mercury News the proposed tax could set a “dangerous precedent.”
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