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4 things you need to know about the 'Netflix tax'




Netflix cut a deal with Comcast on Sunday to help boost streaming performance.
Netflix cut a deal with Comcast on Sunday to help boost streaming performance.
Elise Amendola/AP

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Chill with a little Netflix, hang out watching Hulu, groove to some Spotify...

And pay a tax for it.

A tax on your favorite streaming services could become real.  Some U.S. cities already levy the tax and, now, several California towns, including Pasadena, are mulling it over. 

Henry Grabar has been writing about this for Slate and he joined A Martinez for a little explainer.

1. It's a pioneering effort

"What's going to be covered, probably is going to be a variety of digital streaming services depending on what kind of law it is, but that could include anything from Hulu and Netflix to Spotify to various video game services and so forth."

But when it comes to services like iTunes, it's a little more complicated...

"It depends...are you purchasing an actual object in the sense of a digital album download? If that's the case then that's probably covered by a sales tax. But if what you're purchasing is a streaming service...that's the sweet spot that they're trying to get at now."

2. Blame the potential tax on the decline of cable and telecom

"Cities have long made a good chunk of municipal revenue from telecom taxes and cable taxes. Telecom taxes have really fallen off as people switch to wireless accounts and switch to broadband and there is also a concern that that could be about to happen to cable taxes as well. Many young people don't have cable services and just choose to get their entertainment media from streaming services on the internet, so for cities, they're seeing this big hole appear on their budgets and they're wondering, how can we plug this hole?"

3. The Internet Tax Freedom Act is making it tough

"The Internet Tax Freedom Act which was enacted about 10 years ago and that says that broadband is immune from state and local taxation. So, people who have been working on telecom taxes and cable taxes, they see that source of revenue going away and they look to the internet but you can't just tax a broadband connection, it's not legal. So, that's where you see them focusing instead on how to tax various services and products that are being sold through the internet..."

4. What does this mean for California consumers?

"What's particular about the Pasadena situation...is that this company called MuniServices, which is the tax collector for those municipalities, thinks that this kind of tax is already permitted under existing law. So in this case, it's going to be a utility user tax because the law says the gaming and streaming services may be taxed, regardless of the technology used to deliver such services. So right now the technology has been a cable connection but if the technology switches to being a broadband connection, the theory is you can still tax the gaming and streaming services so that's the utility user tax..."

To hear the full interview, click the blue play button above.



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