Netflix Tax Proposal Dead for Second Time in Alabama

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By Chris Marr

An Alabama proposal to tax streaming media from the likes of Netflix Inc. and Amazon.com Inc. has failed to garner final approval for a second time.

The proposed revenue department rule (Rule No. 810-6-5-.09) would have clarified that digital transmissions “such as ‘on-demand’ movies, television programs, streaming video, streaming audio” and others are subject to Alabama’s 4 percent rental tax, “regardless of the method of transmission.” The rule would have applied to subscription-based services as well.

Issued by the department in February, the proposal reached its July 10 deadline for certification without the department finalizing it, according to Joe W. Garrett Jr., deputy commissioner of revenue at the Alabama Department of Revenue.

“It’s done. It’s not going into effect,” Garrett told Bloomberg BNA July 11. “This is an issue we really want and need the Legislature to resolve. The question is, can we get that done?”

A public hearing on the rule had been scheduled for April 11 but was canceled at the last minute after a new governor, Gov. Kay Ivey (R), took office April 10. The governor’s office said at the time that Ivey was putting a hold on agency rulemaking to review all pending or proposed rules.

The revenue department never rescheduled the public hearing. The governor replaced the state’s revenue commissioner, Julie Magee, with Vernon Barnett in May.

The governor’s position is that “the clarification in the law would be best handled by the Legislature instead of a rule change within the Department of Revenue,” Daniel Sparkman, a spokesman for Ivey, told Bloomberg BNA July 11.

‘Uncertain Future’

This was the revenue department’s second attempt at a rule revision to apply the rental tax to streaming media. In 2015, a similar rule was proposed and then withdrawn following objections by a legislative oversight committee, whose members said the Legislature should decide whether and how to tax digital transactions—not the revenue department.

Garrett said the revenue department revived the proposal during the 2017 legislative session, thinking that it might help spur lawmakers to action.

“We understood at the outset when we proposed the rule that it faced an uphill or uncertain future,” he said. The proposal was “sort of a reminder to everyone that this needs to be addressed in the legislative session.”

Some media companies already collect and remit Alabama’s rental tax on digital transactions, Garrett said, while others don’t. Whether existing state law applies the rental tax to such transactions is debatable.

“That’s not the way the tax should work,” he said. “We ought to have more certainty and consistency.”

Other States

Taxation of digital media is one of many issues that state revenue departments and legislatures are trying to navigate as e-commerce becomes more prevalent. Garrett noted tax laws sometimes make a distinction between downloads and streaming media, and getting the definitions right can be tricky.

In August 2016, Pennsylvania began taxing digital downloads under its 6 percent sales tax, making it one of more than 20 states that tax digital downloads in some form. In Chicago, a tax on streaming media is facing a legal challenge in Illinois state court.

To contact the reporter on this story: Chris Marr in Atlanta at cMarr@bna.com

To contact the editor responsible for this story: Jennifer McLoughlin at jmcloughlin@bna.com

For More Information

The expired rule proposal is at http://src.bna.com/mCA.

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