from the I-technically-don’t-exist-in-the-context-of-this-discussion 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.
Case in point: the city of Maple Heights, Ohio had tried to claim that Netflix owed the city 5% of its revenues in the city because it provides video services to city residents. The problem with these claims, as we’ve seen in other states like Texas, is that Netflix doesn’t have a physical presence in the city, meaning it’s not technically a cable TV provider under state law.
The Ohio Supreme Court declared as much in a November 30 ruling (hat tip, Light Reading), stating that no physical presence in the state means that Netflix shouldn’t be expected to pay a franchise fee:
“Because Netflix and Hulu provide online-streaming services over the public Internet, they are not video-service providers,” the court explained. “They do not need to place their own wires or equipment in the public rights-of-way to provide their subscribers with their programming, and the equipment used to access their services belongs to their customers, not to them. Therefore, neither Netflix nor Hulu is required to obtain a video-service authorization.”
On the plus side, this is the technically correct decision based on the law. And it’s the latest in a string of similar wins for Netflix and Hulu in states like Tennessee, Arkansas, and California. Similar cases are winding their way through the court systems in Texas, Georgia, and Indiana.
That said, when phone companies moved into the cable TV space in the mid to early aughts, they effectively convinced many states to obliterate local town and city franchise authority under the claim that this would foster a huge revolution in traditional cable TV (and broadband) competition, lowering rates.
That, of course, didn’t happen, and in many states, new state level franchise laws making it easier for telcos to enter the space also stripped away a lot of local municipal authority and many local consumer protections. In some states (like Wisconsin), such laws even managed to strip away local eminent domain rights, and towns’ or cities’ income, control, and negotiating power.
So yes, the courts are correct that Netflix and Hulu should not be taxed as traditional TV providers under the law, because they’re not traditional pay TV providers under the law. At the same time, many of these towns and cities have been screwed over by traditional pay TV and broadband providers for most of the last few decades, with no real reform or recourse.
Filed Under: cable tv, franchise fees, municipalities, netflix tax, ohio, ohio supreme court, streaming, video
Companies: netflix
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