Austin The Latest City To Try And Impose A Netflix Tax

from the gimme dept

Hungry to boost municipal budgets, a growing roster of states and cities have spent the last five years or so trying to implement a tax on Netflix, Hulu, and other streaming services. Sometimes (like in Chicago) this has involved expanding an existing amusement tax (traditionally covering book stores, music stores, ball games and other brick and mortar entertainment) to online streaming. Other times this has involved trying to leverage existing cable TV laws or ordinances to try extract their pound of flesh from Netflix. In both, it involves taking rules written for the physical world, and applying them to the internet. Often haphazardly.

That's what's happening in Austin, where the city just joined a growing Texas lawsuit trying to force Netflix to pay the same taxes as local cable providers. Texas law allows cable and video providers to deliver cable TV via publicly-owned utility poles on public land in exchange for remitting 5% of gross revenue to the municipality. So the argument has generally been because Netflix bits technically travel over those same lines, they should also be responsible for paying that tax:

"Streaming services such as Netflix, Hulu and Disney+ have their content moved through those lines, but they do not pay the fees imposed on traditional cable TV providers. Austin officials say they should.

The Austin City Council voted last week to join the coalition lawsuit against streaming providers. It often depends on state law and local guidelines, but such efforts often don't go very well. Georgia, Indiana, Ohio and Nevada have all pursued similar efforts, and most of them have found themselves bogged down in elaborate legal fisticuffs for trying to apply laws generally written for different technologies and different eras to the modern streaming world.

Cable TV providers generally have a physical presence in the towns and cities they serve. Employees live in these areas, climb physical poles in these areas, and do tech support calls in these areas. By contrast, a company like Netflix may have little to no real physical presence in a town (outside of maybe some CDN hardware at an internet exchange point or regional ISP), so demanding they pay a tax under laws designed decades ago for different technologies often proves logically and legally unsound.

Netflix argued as much last January, making it clear the costs would be passed on to consumers:

"These cases falsely seek to treat streaming services as if they were cable and internet access providers, which they aren’t. They also threaten to place a tax on consumers that the legislature never intended, and we are confident that the courts will conclude that these cases are meritless."

I suspect a lot of municipalities will continue to struggle to make progress here. Older franchise agreements and state laws in a lot of states exempt any service that doesn't have significant local physical infrastructure. A mish mash of local court rulings means there's not a whole lot of federal precedent on this stuff, but eventually this debate is going to wind its way to the Supreme Court, where the efforts could easily be swatted down by an over-arching federal ruling.

Filed Under: austin, franchise fees, netflix tax, streaming, taxes, texas
Companies: disney, hulu, netflix

Georgia Towns Sue Netflix In Flimsy Bid To Nab A Slice Of The Pie

from the good-luck-with-that dept

A handful of municipalities in Georgia have filed a lawsuit (pdf) against Hulu, Netflix, and other streaming providers in a ham-fisted bid to saddle customers with cable franchise fees. Such franchise fees were common in the cable TV era. In large part because such cable providers had a physical presence in local municipalities. They utilized public rights of way, hung their coaxial cable on city-owned utility poles, often had local offices or broadcast hubs, and in some instances provided public access television.

As a result, traditional cable companies struck local franchise agreements requiring they pay the local community for the right to access public property and resources. Since streaming providers (usually) have no physical presence in the states they're doing business, those fees didn't transfer over to the streaming industry. Enter these Georgia towns, which filed a lawsuit not only claiming that traditional cable companies haven't been paying the money they owe, but that streaming providers like Hulu and Netflix should also be paying up:

"Gwinnett County, Brookhaven and Athens-Clarke County are seeking an injunction to keep these video service providers from operating in their municipalities until they acquire the necessary franchises, agree to pay franchise fees in the future and compensate the plaintiffs for the unpaid fees for past service dating back to July 1, 2007 as well as legal fees.

The total amount owed to these municipalities if they win the case could be much more than $5 million."

The towns are leaning heavily on a Georgia law named the Consumer Choice for Television Act. The Act was updated in 2007 to require that "video services" pay the town or city a quarterly franchise fee to municipalities in areas where they use the local internet service provider’s broadband facilities to deliver content. The problem, of course, is aside from local content delivery network hubs (CDNs), the municipalities in question aren't really doing anything that warrants getting a slice of this revenue. That's not stopping them, apparently:

"While competitors such as Charter Communications, Comcast and Cox have paid franchise fees in compliance with this law, DirecTV, DISH, Netflix, Hulu and Disney have neglected to apply for a franchise or pay franchise fees since this law went into effect on July 1, 2007, the court filing claims."

This isn't the first effort of this type. Towns in Nevada, Texas, Indiana, and Ohio have been trying something similar. Companies like Netflix, as you might expect, aren't particularly impressed:

"These cases falsely seek to treat streaming services as if they were cable and internet access providers, which they aren’t,” a Netflix spokesperson told The Verge. "They also threaten to place a tax on consumers that the legislature never intended, and we are confident that the courts will conclude that these cases are meritless."

While there's always the chance the case could be heard by idiot judges, I think Netflix is probably right. That said, most of these municipalities have every right to be annoyed, and this is more complicated than just "mean old municipalities are being greedy."

Cities have long been solidly screwed by the telecom and cable industry, which in the early aughts effectively gutted most local (town, city level) franchise agreements. Basically, phone companies like AT&T and Verizon, looking to get into the TV business, whined incessantly about how unfair it was to have to do things like expand broadband and TV service evenly, provide a few public access TV channels, and give local municipalities fair compensation for using city utility poles and public rights of way.

So, over-emphasizing the real occasions where city leaders made unreasonable demands, they lobbied to shift most franchise control to the state level, claiming this would result in greater efficiency, more competition and lower prices. The problem: because state legislatures are more efficiently corruptible by AT&T, Verizon, and Comcast lobbyists, most of these new state agreements by and large screwed cities over, gutted most consumer protections, obliterated local franchise revenue, neutered most of the benefits more local agreements provided (like even broadband deployment), and resulted in state-level agreements that were little more than telecom legislative wish lists.

In the end, cities lost authority and income while facing no shortage of new, costly challenges (like climate change, infrastructure erosion, and COVID). But while it's understandable that municipalities are pissed in the wake of getting railroaded by the telecom sector and losing revenue, trying to claw back this income from streaming providers that have little to no actual presence in these areas doesn't make a whole lot of sense.

Filed Under: cable tv, franchise fees, georgia, streaming
Companies: hulu, netflix