Down to Business: Gaming tax even for non-gamers

PHOTOGRAPHER:

I’m trying to decide whether to remove Netflix from my Christmas wish list. 

For years, Daughter No. 2 has gifted us an annual Netflix subscription, but the streaming giant’s addition of sales tax to the bill is rubbing me the wrong way.

I was confused by the recent subscriber email announcing the tax, which offered few details and left me thinking I missed the news that New York had joined other states and localities in targeting streaming services for new revenue.

Since the Great Recession, it seems, governments have salivated over the growing online consumption of movies, books and music, which long enjoyed amnesty as “intangible” property, or something that could not be touched, felt, weighed, measured – or taxed.

Former Gov. David Paterson proposed tapping the vein in 2009 as he compiled an extensive list of “nuisance” taxes to help close New York’s sizable budget gap, but federal stimulus money came to the rescue.

Today, though, more than two dozen of the 45 states that have a general sales tax apply it to digital products, according to data kept by Avalara, a provider of tax-management software. Most see it as a way “to capture more revenue” as consumer purchases shift online, the company says in a white paper.

The city of Chicago, which added an “amusement tax” on streaming entertainment in 2016, has collected $30 million from it so far this year, Bloomberg reported last month. An official with a Chicago think tank credited the tax as helping the city soldier through COVID, when shutdowns otherwise dampened sales tax revenue.

New York, however, still considers online streaming as “intangible” and not taxable, a Department of Taxation and Finance spokesman confirmed this week.

So why the Netflix email? It’s tied to the company’s foray into video games, according to a Netflix representative.

And since New York tax law views video games as tangible property, like software, it’s subject to sales tax.

Netflix began talking seriously about pursing gaming earlier this year. “We view gaming as another net content category for us, similar to our expansion into original films, animation and unscripted TV,” the company said in a letter to shareholders posted with second-quarter results. 

It’s not meant to be a new profit center, executives say, but rather a way to expand Netflix’s “talkability and zeitgeist moments” to keep attracting subscribers. Paid monthly subscriptions provide the bulk of company revenue.

So far, five games have been released for mobile devices, and the aim is to build slowly and iterate along the way using feedback from subscribers.

But if I’m not a gamer, couldn’t Netflix offer me a plan, sans gaming, so I could avoid the sales tax?

Nope, said the Netflix rep. “[G]ames are now part of the Netflix subscription, and … sales tax is applicable to all members in the state,” she said. 

Marlene Kennedy is a freelance columnist. Opinions expressed in her column are her own and not necessarily the newspaper’s. Reach her at [email protected]

 

 

 

 

  

Categories: Business, News

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