Assembly Bill 252 sought to delay the ability of any localities from taxing streaming video services until 2023. According to a legislative analysis, the pause was meant to provide “service providers time to develop policies appropriate to the provision of streaming services [and] . . . provide support to a signature California industry as it seeks to develop new platforms and improve market share.” The delay would provide streaming video companies “an opportunity to work collaboratively with local governments to structure appropriate tax and regulatory regimes instead of having a patchwork of varying taxes applied to their services with minimal or no debate.”
The bill was opposed by the California Cable & Telecommunications Association, the California Federation of Teachers, California Professional Firefighters, and numerous California cities and counties, including the City of Pasadena. In opposition to the bill, the City of Pasadena argued that:
By prohibiting local governments from imposing any tax, including any sales, use, or UUT on video streaming services, while continuing to allow such taxes to be imposed on cable and video services, AB 252 imposes a discriminatory tax that disadvantages cable and video providers. Tax policy should be fundamentally technology-neutral and applied based on services provided, not the technology used. As such, our elected representatives are obligated to strike down any policy that favors one industry over another.
The bill was supported by AT&T, the Satellite Broadcasting and Communications Association, DISH Network, and the Computing Technology Industry Association, who stated in support of the bill that “[v]ideo streaming companies are entertainment providers; the mere fact that their services are delivered over the Internet should not, by itself, transform these services into utilities akin to electricity, sewer, or even cable TV.”
The Committee Bill Analysis considered whether streaming video service providers should be considered utilities.
Proponents of the bill argue that video streaming companies like Netflix and Hulu are first and foremost entertainment providers. Thus, the fact that their services are delivered over the Internet should not, by itself, transform these services into utilities akin to electricity, sewer, or even cable TV. In addition, if cities and counties are given free rein to tax video streaming services today, what is to stop the taxation of other services provided over the Internet? Is there a principled reason to tax the provision of streaming video services and not the provision of music services like Apple Music and Spotify? What about online gaming, audio podcasts, or YouTube?
The Committee Bill Analysis also notes unresolved technical and legal issues if cities subject streaming video services to tax by administrative ruling. These include compliance with Proposition 218, the Commerce and Due Process Clauses of the U.S. Constitution, and the Internet Tax Freedom Act, issues discussed in our client alert dated December 2, 2016.
