Pasadena officials back away, slightly, from ‘Netflix tax’

Source: Netflix

The city of Pasadena’s decision that it will impose a 9.4 percent tax on SVOD services like Netflix and Hulu caught some of its council members off guard, and has some wondering whether the tax can even be effectively imposed – and the city appears to be walking back its declaration.

In order to tax residents, SVOD providers would have to determine which of their subscribers are actually using the services within city limits, the Pasadena Star-News said Tuesday, and then would pay taxes to the city on those subscribers. The extra cost would certainly be passed on to those subs – adding about $1 to the current Netflix monthly subscription fee, for example.

What’s more, the law authorizing the tax isn’t something new: the city’s tax administrator, Finance Director Matthew Hawkesworth, made an administrative decision based on a “new interpretation” of the Utility User Tax, passed in 2008, to tax streaming services at the same rate as cable companies. He also isn’t required to get council or voter approval on the ruling – which meant some city council members were caught by surprise when a memo circulated last week.

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In the wake of public outcry about the new tax, however, City Manager Steve Mermell said the ruling hasn’t been officially issued yet and that the city attorney is reviewing the ruling. “As of right now, nothing has changed and nothing is changing until we have the opportunity to fully review our ordinance and what this means locally, based on what was approved by the voters,” he said in a statement reported by the Star-News. If the ruling stands, the tax would go into effect on Jan. 1.

That may not be the end of the story, however: The consulting firm that advised Hawkesworth said that 45 other California cities could also impose taxes on SVOD providers.

Of course, anyone who has the slightest involvement in OTT video knows that the methods SVOD services would mostly likely have to use to confirm residency – IP addresses and profile information – can be bypassed by a motivated consumer.

Chicago began taxing streaming services at 9 percent in 2015, despite a lawsuit challenging the Finance Department’s ruling. That case is still in progress. However, the city relies on SVOD subscribers’ billing addresses to impose the tax. It’s not hard to figure out how to avoid that tax when subscribing to Netflix.

For more:
- see this Star-News article
- and the original article
- see this Forbes article
- see this Illinois Policy article

Related articles:
Netflix may face tax in Australia; YouTube Red launches first originals
Comcast loses pair of Oregon state tax rulings

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