Your streaming services are about to get more expensive. Around half of the states in the U.S. are now collecting tax for services like Netflix (NASDAQ: NFLX) and Spotify (NYSE: SPOT) which were previously exempt because they constitute intangible goods which traditionally have not been taxed.
With streaming services becoming more and more ubiquitous in households across the U.S., states have begun eyeing them for potential taxation. Even some cities have placed their own tax on these services. Currently, there are seven different states all considering following twenty-two states' examples by adding a tax to streaming services.
"It's a fast-moving policy development," said senior fellow at the Center on Budget and Policy Priorities, Michael Mazerov. "Bills are constantly being introduced on this."
2018 was the first year in which more Americans purchased streaming services than TV, and the number grows higher every year. With TV generating less money in taxes for the states, taxing streaming services is a way to make up for that short-fall.
"Movie theaters charge a tax, and Netflix should be treated the same," said Ned Lamont, Governor of Connecticut.
Connecticut is on the forefront of this movement: they've placed taxes not just on streaming services, but on other services as well. Tanning, dry cleaning, landscaping, design work, pet grooming and boarding, and dating referral services are just a few of the 20 such services being taxed in Connecticut.
"Our current sales tax is designed for a Sears Roebuck economy driven by over-the-counter sales," Lamont said in a budget address last year supporting a streaming tax. "Today we live in an Amazon (NASDAQ: AMZN) economy, which is driven by e-commerce, digital downloads and consumer services."
On average, sales tax in the U.S. falls at about 6%. This may not seem like much, and it really isn't for most consumers, but it adds up for the states. It also is applied to each streaming service, so those subscribed to more services will pay more in taxes.
The number of services we subscribe to does seem to keep going up. From Disney+ (NYSE: DIS) to Hulu, from Netflix to HBO (NYSE: T), there are tons of streaming services on the market, and there will soon be even more. Quibi, a streaming service based around "quick bites" content, will be launched this spring, and NBCUniversal (NASDAQ: CMCSA) will be releasing a streaming service called Peacock, in April.
In Maine, there will be a different tax rate for permanent purchases, such as e-book downloads, and non-permanent purchases, such as a Netflix subscription. Maine's tax will go into effect this October.
Associate commissioner for tax policy in Maine's Department of Administrative and Financial Services, Michael J. Allen estimates that the state will raise $3.7 million in 2021 and $6 million in 2023 from these taxes.
On the other end of the scale, Kansas' governor predicts that their tax, which goes into effect in July, will raise $26.7 million in 2021.
Some states, however, are not on board. Voters in Arizona and Missouri effectively banned such a tax by passing constitutional measures to restrict it. States like Alaska, Delaware, Oregon, New Hampshire, and Montana don't have sales tax, so they probably won't be passing a streaming services tax any time soon.