Netflix owes Colorado sales tax on streaming
Amanda Pampuro
DENVER (CN) — Even though the law predates the technology used to stream movies, Colorado can tax Netflix's services, the Colorado Court of Appeals wrote on Friday, overturning a lower court’s finding.
“The division reverses, concluding that Netflix sells tangible personal property at retail when it sells subscriptions such that those sales are taxable under the sales tax statute,” wrote Court of Appeals Judge Matthew Gove in a 17-page opinion.
Netflix has been asking the Centennial State to exempt it from the sales tax for more than a decade, arguing that Colorado's taxation of “tangible personal property” cannot apply to streaming services that didn’t even exist when the law was written in 1935.
In 2021, the Colorado Legislature passed House Bill 21-1312, codifying Department of Revenue rules allowing the taxation of digital goods. But under Colorado’s Taxpayer Bill of Rights, or TABOR, the government can’t raise taxes without first getting voter approval at the ballot box.
The streaming company sued the state on Feb. 25, 2021, but withdrew its complaint on July 19, 2021, to challenge the tax rule through the administrative process. After the executive director of the Department of Revenue denied Netflix’s claim for a tax refund, the streaming service appealed the decision in state court in June 2023. A Denver judge granted the streamer summary judgment in April 2024, which Colorado appealed, arguing that its application of an old law to a new good doesn't break the law.
During oral argument in June, the three-judge panel debated the best analogue for Netflix’s services, and whether they should be exempted from the sales tax like cable companies or subjected to it as Blockbuster rentals had been.
In Friday’s opinion, the court drew parallels between e-book sales and digitally delivered newspapers, which are taxed under state law.
"Our review of the contemporaneous understanding of ‘corporeal’ reveals that that term encompasses things that can be perceived by any of the senses — not exclusively the sense of touch,” Grove wrote.
The evolving definition of “corporeal property” is necessary, according to the court's opinion, because to only tax things that can be touched would exclude anything sold digitally, from photos to music and magazines, products “the Legislature obviously intended to tax,” Grove wrote.
The panel found the content being sold to be more important than the technological box it was delivered in.
“Casting aside nearly a century of historical practice simply because technological advancements have altered the specific form of delivery — while leaving the product itself largely unchanged — is a step that we are not willing to take,” Grove said.
Senior assistant attorney general Emma Garrison argued the case on behalf of Colorado. The state attorney general’s office declined to comment.
Netflix declined to comment on the ruling.
Court of Appeals judges Craig Welling and Sueanna Johnson signed onto the opinion. Democratic Governor Jared Polis appointed all three appellate judges to the court.