If you’re like me, inherently cheap, every month when the cable bill shows up, I immediately lose my mind about what a monopoly AT&T has become. Why do I continue to pay such an exorbitant amount to watch Good Will Hunting once a week, or Braveheart for the one-thousandth time? Why can’t I stop watching The Italian Job? Thank the Lord they cut it out with the Jason Bourne marathons and Blackhawk Down. I feel like they’re predatorily playing great 90’s action movies knowing those of us 20 years removed from college plop down in the most comfortable couch we own between the hours of 8 and 10 pm weekly. And I just can’t say no.
Let’s not get started with the customer service aspect of this monopoly, and the “your promotion period has expired” annual runaround. My internet speed isn’t anywhere near worth what I’m paying, and I’m tired of them telling me that my 80-year old house has too much plaster and an excessive amount of stone in my chimney for their wireless boxes to communicate efficiently. For real, that’s what you’re going with?
After years of resistance, my wife and I have given in to the Costco “thing” and joined last month. I’m not even sure what to call it. More than a fad, maybe not quite a way of life, but it depends on who you talk to. Even with kids, we still don’t insist on too many bulk purchases. What we haven’t given in to yet is the Netflix phenomenon. Go ahead, let me hear it, I can take it. I’ve also heard phrases like Hulu and Roku; I’ve yet to sit down and price these out, but I’m open to suggestions. For now, if the Jackets are on, and my wife gets to see Bravo, we’re at the mercy of AT&T. I’m getting to my point…
There is a phenomenon I’m growing more jealous of by the day, the at-home workout conglomerates such as Peloton and Mirror. That is until I hear about the “new” taxability of some of the products and services offered by the get-fit-at-home crazed companies. As usual, this is where I call on my good buddy Jeff Monsman to walk us through what a complicated mess multistate sales taxation has become in this post-Wayfair world of digital products:
Unlike Judson, I became a cord cutter a few years ago. It’s the wave of the future. A la carte, everything. YouTubeTV? Check. Netflix? Check. Disney+? Check. The streaming service that includes all of the Hallmark movies with the same cast in a different setting but the same ending? Check. Guess what each of these streaming services has in common? They are all increasingly becoming subject to some sort of sales or transaction tax throughout the country. Prior to cord-cutting, many states had a tidy statute that taxed cable television in a very specific way. Early on, these streaming services did not quite fit into the cable/broadcast statutes, creating that ever-present state and local tax grey area.
The “on demand” nature of streaming and subscription-based services created a gap in taxability and, in turn, revenue shortfalls. As a result, states began enacting broad sweeping sales tax statutes that tax items such as “specified digital products” or “digital audiovisual works”. Additionally, some states have tried to tax these services under existing access, amusement, or even telecommunications statutes, creating even more headaches for taxpayers and advisors who are simply trying to do the right thing.
Seemingly, these ambiguous statutes include all of the streaming services and perhaps some additional items not even originally contemplated by the law. In some states, the taxability of these services extends to access to continuing education libraries, e-learning platforms, or even workout videos. As the work environment went virtual overnight around this time last year, many items that taxpayers never dreamed would be subject to sales tax, are now firmly in the crosshairs. Things such as industry conferences (either live-streamed or pre-recorded…the distinction may matter), archived meetings, and virtual on-demand capabilities (i.e. Zoom, GoToMeeting, Microsoft Teams) have to be analyzed for sales tax purposes across all states. In some states, it’s straightforward; these services have been taxable for a while under a variety of statutes. However, the ambiguity in other states (remember “specified digital products” two paragraphs ago?), leaves room for interpretation.
As we emerge from our almost year-long hibernation, the reality of state budget shortfalls will further set in, which may lead to even more states attempting to tax additional services. Streaming and content access appear to be the easiest target. The problem becomes states that rely on the unclear existing statutes to tell taxpayers that “it’s always been taxable!” as opposed to enacting new legislation to tax these services. We all know how long the legislative process takes. Extrapolated liabilities could be created overnight and pose as a trap for the unwary.
So go ahead and watch Frozen II or Tiger King (going all the way back to 2020 for that one) on a constant loop, or join that GoToZoomTeams meeting, but remember, the subscription to hours of non-stop entertainment may carry a sales tax liability as well.