Sales Tax Slice: Taxes on Streaming Services are Music to States’ Ears


Beyonce2A few weeks ago, Beyonce and Jay-Z dropped their surprise, collaborative album, “Everything is Love.” If you’d like to listen to it, you’ll have to subscribe to a music streaming service like Tidal, Spotify, or Apple Music, and if you do, you’ll want to see if your state taxes streaming audio or audiovisual services. In recent years, there has been some controversy as to whether these services are or should be subject to sales and use or other taxes.

While the sales and use tax was originally imposed on sales of tangible personal property, many states, such as Colorado, Maine, and Wisconsin, now impose sales and use tax on streaming services. Indeed, several states have expanded their sales tax base to include these services in the last few years. Such states include Arkansas, which imposes sales and use taxes on streaming services starting Jan. 1, 2018, and Iowa which taxes the retail sale of digital audio works, including on a subscription basis, effective Jan. 1, 2019.

Additionally, while not pertaining specifically to a general sales and use tax, the Cook County Circuit Court recently found that Chicago’s amusement tax applies to internet-based streaming services provided to subscribers with a Chicago billing address. In Labell v. Chicago, internet streaming services subscribers claimed, among other things, that the tax on the streaming services violated the Commerce Clause of the U.S. Constitution since the tax may be imposed on streaming services used outside of Chicago. In response, the Cook County Circuit Court upheld the constitutionality of the tax, stating that “the amusement tax is applied to an activity with a substantial nexus with [Chicago].” As a result of this recent case, Chicago residents can expect to pay an extra 9 percent tax on these services.

To add more complexity to the taxation of streaming services, the U.S. Supreme Court recently held that the lack of physical presence no longer limits the imposition of nexus on out-of-state retailers in its South Dakota v. Wayfair, Inc. opinion. The South Dakota statute at issue in Wayfair imposes nexus on retailers who meet an economic threshold by making more than $100,000 in sales or making deliveries in 200 or more transactions into the state in a calendar year.

It’s currently a bit unclear as to what would constitute a transaction in the context of streaming services. Could a transaction be a monthly bill, an annual bill, or streaming a single episode or movie? While it remains to be seen how or whether states will seek to impose nexus over streaming service providers, the SALT world will certainly be watching.    

Continue the discussion on Bloomberg BNA’s State Tax Group on LinkedIn: What nexus rules should apply to streaming services?

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