Alabama Tax Agency Proposes ‘Netflix Tax’

Published June 25, 2015

Alabama’s Department of Revenue is proposing administrative changes to the state’s interpretation of existing tax law to extend existing taxes on videocassette rentals to include online streaming services such as Netflix and Hulu.

‘Policy Change’

Cato Institute Director of Tax Policy Studies Chris Edwards says the state’s tax collectors are overreaching their authority.

“The most outrageous thing about it is that the state tax agency seems to want to expand, [actually] create this tax, without legislative approval,” Edwards said. “This seems to be a policy change, and policy changes should be voted on by the people’s representatives in the legislature. There’s an executive branch overreach problem here.”

A Matter of Fairness

Edwards says the Department of Revenue’s proposal is unfair and would place excessive administrative burdens on businesses and consumers.

“You have to look at the fairness, you have to look at the administrative burden, and Alabama should look at if they’re going to kill new online business here and if it will damage the broader economy,” Edwards said.

“The government, of course, is looking at the financial impact all wrong,” Edwards said. “There is a more basic question here about where that extra $5 million or $10 million would better serve the economy, in the hands of the Department of Revenue or remaining in the individual’s pocket.”

Edwards says the Netflix tax proposal reminds him of executive policy actions implemented by President Barack Obama.

“It’s an ongoing battle, the executive branch overreach here,” Edwards said. “We’ve seen similar things with the Obama administration, of course. The Obama administration has imposed policies that are not proper executive branch decisions to make. They should be decided in the legislature.”

Creating a New Tax

R Street Institute State Programs Director Cameron Smith says Alabama’s taxmen should collect existing taxes rather than make up new ones.

“The big issue for me is that state governments have a lot of authority to decide how they want to tax, and that’s fine,” Smith said. “The challenge is who gets to make that decision, because this is a substantively different tax than the one already on the books. That decision should be left to Alabama’s legislature.

“This should not be something that the Department of Revenue unilaterally decides, ‘Well, we’ll just update the taxes to the times,'” Smith said. “It’s sort of like saying, ‘We have a horse and buggy tax, so we’re going to tax automobiles, too.’ I think you have to [acknowledge] this is materially different technology.”

Constitutional Concerns

Smith says the power to create new taxes should be reserved for elected officials, not bureaucrats.

“It’s important to make sure that the elected representatives of the people are making the policy regarding how citizens are taxed,” Smith said. “It’s tempting to have commissioners and other bureaucrats make these decisions, because it doesn’t require a lot of political courage.

“At the end of the day, we have systems and structures in place that are there as a matter of law and, specifically in state constitutional law, of who has what authority, and we need to make sure that those who are elected by the people are making the decisions, especially when it comes to who gets taxed,” Smith said.

Amelia Hamilton ([email protected]) writes from Traverse City, Michigan.

Internet Info:

Austan Goolsbee, Journal of Economic Perspectives, “The Implications of Electronic Commerce for Fiscal Policy (and Vice Versa)”: