Streaming fees could rise 5% as cities sue to impose a ‘Netflix tax’

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Your Netflix bill could go up by around 50 cents a month if cities succeed in a series of lawsuits to force the streaming giant—and competitors Disney+ and Hulu—to begin collecting a tax aimed at cable companies.

In lawsuits filed over the past week, Indianapolis and four other Indiana cities say that companies like Netflix should pay a “right of way” tax for accessing municipal telephone infrastructure like cables and telephone poles. A town in Texas filed a similar case on behalf of other cities in that state, and if the cases are successful, other cities are likely to follow suit.

The premise of the lawsuits may seem far-fetched—it’s hard to see how Netflix is accessing municipal infrastructure anymore than you are with your home Internet connection—but the money at stake is serious. In the case of Porter County, Indiana, for example, the district earns nearly half a million dollars a year from “video franchise fees” imposed on cable companies.

According to Toby Bargar, a senior tax consultant at Avalara, cities are seeking to impose the cable company tax on streaming services in order to make up revenue lost as a result of cord-cutting. As more consumers ditch their cable companies, it means fewer are paying local taxes for TV entertainment, which are capped by federal law at 5%.

The idea of taxing Netflix and Disney for accessing municipal rights-of-way is a long shot, according to some lawyers. But Bargar says that, in the absence of new laws aimed specifically at the streaming services, cities are trying to shoehorn them into existing tax regimes.

The fight is not a new one, and grows out of the fact that federal law prohibits cities and states from taxing Internet access—that’s why you don’t see a series of fees on your Internet bill like you do on wireless or cable bills. The plaintiffs in the new cases are essentially arguing that streaming services have more in common with cable TV operators than they do with the Internet.

The recent lawsuits over “right of way” come after states like Florida and Chicago, as well as the city of Chicago, have found ways to tax the streaming giants using other existing laws—in Chicago’s case, it used a decades-old “amusement tax” aimed at carnivals.

Netflix, Disney and Hulu did not immediately respond to questions about whether they will fight the new lawsuits in court. If they do, the cases could drag on for years—or until cities and states tweak their tax laws to define streaming companies as cable companies.

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