Cities considering taxes on video streaming services
For television viewers who “cut the cord” and moved over to streaming video services, the cable companies aren’t the only ones missing your money.
Turns out your hometown might be longing for your dollars, too.
Cities throughout California — including at least a dozen in the Bay Area — are considering adopting a streaming video tax to make up for revenue lost by viewers who have left their cable TV subscriptions behind in favor of Netflix, Hulu or HBO Go, among others.
If the cities are successful in adjusting their existing utility users taxes — and there are questions surrounding the legality of such a move — viewers could be forced to pay as much as 10 percent more to stream Netflix’s “Orange is the New Black” or Amazon Prime’s “The Man In the High Castle.”
Cities from Richmond to Redwood City to Watsonville are looking at adopting a streaming video tax. Alameda, Albany, Emeryville, Gilroy, Hayward, Hercules, Menlo Park, Los Altos, Newark and San Leandro have ordinances that could be tweaked to allow them to tax video streaming without a fresh round of voter approvals.
Netflix was quick to suggest that a so-called “Netflix tax” violates consumers’ rights.
“It’s a dangerous precedent to start taxing Internet apps and websites using laws intended for utilities like water and electricity,” said Anna Marie Squeo, a spokeswoman for the Los Gatos-based company. “It is especially concerning when these taxes are applied to consumers without consent and in a manner that likely violates federal and state law.”
For consumers, the monthly increase could add up. Using a 10 percent video tax as a benchmark, viewers trying to keep up with “Game of Thrones” on HBO Now would see their service jump from $15 to $16.50 a month. The Netflix tier that now costs $9.99 would increase by a dollar a month, and Hulu’s service would rise from $8 a month to $8.80.
It’s also possible that consumers might wind up paying taxes for cable TV services to which they subscribe and also for streaming services.
“People would get taxed on both cable and streaming services” said Benicia’s city attorney, Heather McLaughlin. Benicia adopted a streaming video tax in August. “You are lowering your bill on cable if you stream videos because you are not subscribing to every single cable channel.”
The Internet Association, which lobbies for policies that protect and promote Internet freedom, said the tax could become a slippery slope.
“It would also open the door for countless other industries to be targeted for similar tax grabs in the future,” Robert Callahan, the group’s California executive director, said in a statement. “Websites are not utilities, and should not be subject to the utility users tax.”
Nonetheless, some cities believe they already have ordinances in place that would enable them to impose taxes on video streaming, also known as “over-the-top services.”
“Our consultant is speaking with the video streaming industries to make sure they understand that it is already included in our ordinance,” said Jon McGirr, Menlo Park’s revenue and claims manager. “We want to be sure our tax is applied fairly.”
Donald Maynor, an Atherton attorney, has helped more than 60 California cities in passing “modernized” utility tax ordinances. He says the ordinances are flexible enough to allow for taxes on video streaming services.
“We are in the beginning of the process to work with the streaming industry and the issue of how utility user taxes can be applied to video streaming,” Maynor said. “This is just the beginning of the process.”
Officials in cities such as Richmond, Newark and Redwood City say they are waiting to get information from their consultants about how to proceed with changes to their ordinances.
In San Jose, where there is no existing video tax ordinance, voters would have to sign off on a streaming tax, said Julia Harper Cooper, the city’s finance director. That’s because Proposition 218, approved by California voters in 1996, imposes curbs on the ability of cities and counties to raise taxes without voter approval.
An estimated 45 cities in California could wind up passing changes in their utility users tax. Pasadena’s finance department in September decided to apply a 9.4 percent tax — which goes into effect Jan. 1 — on streaming video subscribers. Similar taxes are on the books in Pennsylvania and Chicago.
Jon Coupal, president of the Howard Jarvis Taxpayers Association, said any adjustments to existing ordinances are new taxes by any other name.
“Is it a substantive addition to a tax? Of course it is,” Coupal said. “And we also think that taxing video streaming is a violation of the Internet Tax Freedom Act.” That U.S. law was approved in 1998.
Voters in two of the region’s cities will get a chance to weigh in on Election Day. Alameda and Watsonville have measures on the ballot that would lay the groundwork for such taxes.
Alameda officials say the current ballot measure is aimed at fixing a problem that began when people ditched their landlines for cellphones.
“The intent was to deal with the revenue loss from the migration to cellphones,” said Jill Keimach, Alameda’s city manager. “Every year since 2008, our revenue from the telecommunications part of our utility tax has declined by $250,000 a year.”
Joey Garcia, a Santa Clara resident who founded the Cord Cutter Club on Facebook, doesn’t like the idea of taxes on video streaming. Garcia said he is able to receive about 100 channels through an antenna.
“More people are cutting the cord, and it’s a national trend,” Garcia said. “We are living in the post-2008 financial crisis, and people don’t have the money to throw away on cable TV as much as before.”