Virginia won’t be taxing Netflix for now

At least one Virginia lawmaker believes the state should tax streaming services such as those provided by Hulu, Netflix, Spotify, and others. Or rather, she believes the state should start talking about such a tax. After raising the matter with the House Finance Committee, House Bill 1051 sponsor Delegate Vivian E. Watts urged the committee to vote against the legislation in its current form. And it did.

The measure proposed extending Virginia’s 5 percent communications sales and use tax to streaming services, defined as “a method of transmitting or receiving video and audio data over a computer network as a steady, continuous flow, allowing playback to proceed while subsequent data is being received.” It would also have repealed an exemption for prepaid calling services. According to the bill’s fiscal impact statement, it would have generated an estimated $7.9 million annually for localities.

Currently, state’s communications sales and use tax applies to more than 10 services, including cable television service, landline and wireless telephone services, and satellite television and radio services.

Yet it does not apply to many other services, including but not limited to electronically delivered digital products (e.g., music, reading materials, software), information services, internet access service, or prepaid calling services. As evidenced by the bill, audio and visual streaming services are also exempt.

During the Finance Committee’s discussion, Del. Watts called this “an important dialogue that we need to engage in for fairness amongst all of the ways in which we communicate.” Dean Lynch, executive director of the Virginia Association of Counties remarked that “when the CST was put in place in 2006, it was never intended to be frozen in time. Twelve years in technology is a long time … . This bill updates the tax to reflect the world we’re living in, not the world of 12 years ago.”

Taking a different point of view, Delegate Tim Hugo called the proposed tax a “mistake” that particularly targets younger generations: “If you’re under 30, this is a tax on how you get your information, how you watch your TV, how you consume everything every day.” He then acknowledged, “Even a few of us over 30 watch Hulu, watch Netflix.”  

More states consider tax on streaming services

Though Virginia has tabled the discussion for now, there’s a good chance it will return to it. While some states, including Kentucky, have decided to not tax streaming services, Florida and Pennsylvania have opted to tax them, as has Chicago. Still others, including Alabama and Maine, have or are considering taxes for streaming services.

Learn more about the taxability of software at the Avalara Software and Sales Tax Resource Center.