Netflix tax

Soon to be subject to Pasadena’s utility users tax.

Update, 11.17.2017: After questions were raised about the proposed tax, Pasadena decided to not tax Over the Top Television services such as Hulu and Netflix as of Jan. 1, 2017: “Whether an administrative ruling is ultimately adopted in Pasadena will come only after a full and complete review of the matter.”

Hang on to your remotes. HBO Go, Hulu, Netflix, and similar “video streaming” services will be subject to a 9.4% tax in Pasadena, California, beginning January 1, 2017. It’s not the first city in California to institute such a tax, and there is good reason to believe it won’t be the last.

The City Council of Pasadena recently announced its intention to apply its utility users tax (UUT) to video services such as video programming, referred to as Over the Top Television (OTT). “Video programming” is defined as “those programming services commonly provided to subscribers by a ‘video service supplier,’ including but not limited to basic services, premium services, audio services, video games, pay-per-view services, video on demand, origination programming, or any other similar services, regardless of the content of such video programming, or the technology used to deliver such services, and regardless of the manner or basis on which such services are calculated or billed.”

According to Matthew Hawkesworth, the city’s Director of Finance, “these types of video services have always been eligible to be taxable” because of the city’s code. Back in 2008, Pasadena voters approved an update to the UUT ordinance guaranteeing that “new definitions of taxable services would be technology-neutral.” It also permits the Tax Administrator to periodically issue administrative rulings in order to “provide guidance to the tax collecting utilities of their responsibility to collect the City’s UUT on their ‘video services’ from the end-users.” Such an administrative ruling has now been made, and as a result, the UUT tax will be collected by companies providing video programming services beginning January 1.

Pasadena was advised to tax video programming services by MuniServices, the city’s UUT consultant. It is not the first city to extend the UUT to these services: Benicia already applies a 3.5% UUT to video programming, and Indio’s UUT on video services is 6% for non-CATV and 3% for CATV.

But it should be noted that Pasadena’s move is not without controversy, even within the Pasadena City Council (California City News). Tax increases in California require voter approval, and to hinge this tax increase on an ordinance approved back in 2008 seems to some to be a stretch. If more cities follow suit, more protests could arise. MuniServices advises dozens of other cities in California, including San Bernardino, Culver City, and Santa Monica.

Keeping up with the taxation of digital goods and services is tricky, as it’s an area ripe for change. Tax automation ensures businesses stay up-to-date on changing tax policies such as this one. Learn more.

photo credit: Day 81 via photopin (license)