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Wednesday, March 1, 2017

Tax Paternalism - California AB 252

AB 252, a proposal in the California legislature "would prohibit the imposition by a city, city and county, or county, including a chartered city, city and county, or county, of a tax on video streaming services, including, but not limited to, any tax on the sale or use of video streaming services or any utility user tax on video streaming services.  This bill would make a legislative finding and declaration regarding the statewide concern of the promotion of uniformity in access throughout the state to video streaming services." (Also see 2/3/17 statement from sponsor Assemblymember Ridley-Thomas.)

That is, the state tells the local governments what they can and can't tax all in the name of helping an industry grow.

A few quick observations:

  • Why doesn't the state give up its own revenue if it thinks the industry needs help? It could give the industry a new state tax credit, for example.
  • Local governments in California already have their hands tied by the state. Local governments are not allowed to impose an income tax, and the sales tax base is defined at the state level (and is very narrow in California).
  • Standard Netflix service is about $10 per month. The utility user tax on this would barely be noticed by a customer, but in aggregate can be a helpful revenue stream for a city. For example, the communication user tax in Los Angeles is 4.5% (45 cents per month on a standard Netflix account of a customer in LA). This is unlikely to cause Netflix to lose customers.
As new services arise, they might fall within existing taxes. Or, they might be tax-exempt when similar services are taxable and lead the taxing jurisdiction to modify (neutralize) the law and have it apply similarly to similar taxpayers.

What do you think?

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