California City Lawmakers Consider New ‘Netflix Taxes’

Published November 9, 2016

Lawmakers in numerous California cities are considering extending taxes on cable television service to include online streaming video services, such as Netflix.

One city is already taxing on-demand video, and lawmakers in almost 50 California cities are exploring amending existing taxes on cable television and other utilities or adding new taxes that would include streaming video services.  

Beginning in January, Pasadena will add a 9.4 percent excise tax to the price of Netflix and other digital services.

New Taxes, Same Purpose

Craig Eyermann, a research fellow at the Independent Institute, says Netflix taxes help government grow at consumers’ expense.

“The ‘Netflix tax’ being proposed in Pasadena and at least 45 other cities in California is the extension of the state or local government’s sales and excise taxes to also cover digital products, such as subscriptions to Netflix, Hulu, or other streaming video and music services,” Eyermann said. “The real purpose of the tax is the same as any other tax, which is to increase the revenues of state and local governments so that they can either sustain or increase their spending.”

Grabbing Cash from Consumers

Andrew Moylan, executive director and senior fellow for the R Street Institute, says digital taxes are just a cash-grab to pay for an ever-growing government.

As more and more entertainment services move to the internet, as opposed to cable services, tax collectors are turning their eyes to internet-based entertainment for taxes,” Moylan said. “Some of these California cities that are looking to extend a utility users tax to subscription services, … you’re talking about just shy of 10 percent on average in California. These are not an insignificant amount. In other places, these rates are going to be much higher.”

Recommends Lowering Taxes

Moylan says lawmakers should work to make taxes as low and broad as possible, instead of targeting specific goods and services for tax hikes.

“In general, I think it’s a bad idea, because it does not come from a desire for a good, solid tax policy,” Moylan said. “It almost always comes from a desire to find money. If cities and states wanted to engage in a broad tax reform that broadens the base to include internet services, that’s in pursuit of a better tax policy: broadening the base and lowering the rates.”