Loveland, Colorado, is a home rule city, meaning it administers and collects its own local sales tax (3 percent), while the Colorado Department of Revenue administers the 2.9 percent state sales tax and the 0.65 percent Larimer County sales tax. Home rule jurisdictions in Colorado are entitled to tax any of the tangible personal property and services that are taxable under state law.
The state does not tax the streaming services provided by Netflix. However, in Aug. 2016, a Loveland Revenue Division audit found Netflix liable for $85,000 in sales tax for the period of Sept. 1, 2012 through Aug. 31, 2015, for the “sales/rental of tangible personal property.” Penalties and interest bring the total due to $116,000.
Netflix filed a Petition for Review and Modification of Notice of Determination the following month, and a hearing was held in Jan. 2017. To date, the city has not issued a decision. Netflix agreed to pay the amount assessed, “under protest and under duress,” and filed a Complaint and Notice of Appeal against the city on Oct. 3, 2017.
Loveland: Netflix services are taxable
The city asserts that Netflix owes city sales tax on “sales/rental of tangible personal property.” According to the Loveland Finance Department, a business is considered to be “engaged in business” in Loveland if it:
- Directly, indirectly, or by a subsidiary maintains a building, store, office, salesroom, warehouse, or other place of business within the City of Loveland.
- Sends one or more employees, agents, or commissioned salespersons into the City of Loveland to solicit business or to install, assemble, repair, service, or assist in the use of its products, or for demonstration purposes.
- Maintains one or more employees, agents, or commissioned salesperson on duty at a location within the City of Loveland.
- Owns, leases, rents, or otherwise exercises control over real or personal property within the City of Loveland.
- Makes a delivery into the City of Loveland.
Under the Loveland tax code, “The burden of proving that any retailer is exempt from collecting the tax on any goods or services sold and paying the same to the City manager or from making such returns, shall be on the retailer or vendor.” (3.16.070 D). The tax code doesn’t specifically reference streaming services such as those provided by Netflix.
Netflix: Services sold in Loveland are exempt
The company maintains its services are not taxable. It states in the complaint, “The city’s sales tax is imposed only upon the sales of tangible personal property that are also subject to the Colorado sales tax.”
Netflix argues that its streamed video content “does not constitute tangible personal property. … To be taxable as a sale of tangible personal property, there must be a ‘transfer’ … of ‘the ownership or possession of tangible personal property.’”
Furthermore, it reminds that Netflix users “can and do use the streaming service anywhere in the world on their portable devices and neither the city nor the plaintiff can source these transactions to the city.”
Evidence offered in support of its case includes:
- There is no charge for individual pieces of content
- Viewers may not download Netflix content
- Netflix “retains exclusive control over all aspects” of its streaming services at all times — it can remove content, even mid-viewing
- “A single movie … may be streamed simultaneously by hundreds, if not thousands, of subscribers”
- None of the services used by Netflix to stream content are located in Loveland
Taxing streaming services spreads
Whether streaming services like Netflix should be taxed is a subject of debate.
Many states now tax streamed audio and video content, including Minnesota, Nebraska, Ohio, Pennsylvania, South Dakota, and Wisconsin. Other states, including Alabama, Illinois, Louisiana, and Maine have considered doing the same.
Loveland isn’t the only locality that would also tax them. In 2015, Chicago extended its 9 percent amusement tax to streaming services (it’s being challenged). And Pasadena, California, imposes a tax on video streaming services as of Jan. 1, 2017.
Retailers engaged in business in Loveland must file and remit sales tax with both the City of Loveland and the Colorado Department of Revenue. While this may work well for Larimer County, it complicates sales tax compliance for businesses. Tax automation software can simplify it. Learn how.