Pennsylvania Expands 6 Percent Sales and Use Tax to Digital Products

Pennsylvania is the latest government entity to impose a so-called “Netflix tax” on its citizens, reports Penn Record. Brought forth by the state legislature,

Subscription News: Pennsylvania Expands 6 Percent Sales and Use Tax to Digital Products

Source: State of Pennsylvania

Pennsylvania is the latest government entity to impose a so-called “Netflix tax” on its citizens, reports Penn Record. Brought forth by the state legislature, the 6 percent digital product tax will cover over-the-top TV services like Netflix, Hulu and Sling TV, along with other digital products. It was part of a new revenue package passed on August 1. Newspapers and magazines delivered by digital or electronic means are exempt.

The digital product tax is not a brand new tax, however. It is an extension of a 6 percent sales and use tax that already exists. This is similar to Chicago’s extension of its 9 percent amusement tax passed in 2015. While a spokesman from the Chicago mayor’s office specified the new tax was a clarification, not an expansion, the amusement tax applies to rentals of shows, movies, videos, music and games.

Subscription News: Pennsylvania Expands 6 Percent Sales and Use Tax to Digital Products

Source: Netflix

According to the Pennsylvania Department of Revenue, Act 84 of 2016 applies the state’s 6 percent sales and use tax to the purchase of digital products that are delivered to consumers electronically, digitally or via streaming. The department of revenue offered these examples of items that would be subject to the 6 percent tax:

  • E-books from Amazon Kindle, Barnes & Noble’s Nook Press, Scribd and other retailers, whether for purchase or via subscription
  • Digital video that is downloaded or streamed or a subscription to a streaming service like Netflix or Hulu
  • Digital audio that is downloaded or streamed, including songs, ringtones and audio books from iTunes and Google Play, as well as subscriptions to satellite radio and other streaming audio services
  • Apps and games that are downloaded, including add-ons and subscriptions to online games
  • Photographs
  • E-greeting cards

Retailers doing business in Pennsylvania are responsible for collecting the tax and remitting it to the state of Pennsylvania. If the retailer does not collect the tax, the customer is supposed to report the 6 percent tax on their purchases on the appropriate year’s personal income tax return. The location of the sale is the customer’s billing address.

Some exemptions are allowed:

  • Purchased made by qualified charitable organizations, volunteer fire companies, religious organizations and nonprofit educational institutions
  • Textbooks purchase from or through accredited schools
  • Newspaper and magazine subscriptions
  • The resale of a digital product

Pennsylvania is one of many municipalities looking for ways to cover budget shortfalls with taxes on digital goods. This fall in Pasadena, California, the city’s finance department will begin applying a 9.4 percent tax on “video services” starting January 1, reports the Pasadena Star News. It is just one of 45 cities considering a tax on video services.

In Pennsylvania, the new 6 percent tax would mean a $10 monthly Netflix bill will now be $10.60. That $0.60 bump may not seem like a lot, but when subscribers add up all of their digital purchases and subscriptions over the course of a month, this could quickly add up.

Here’s an example of the possible impact it could have on one subscriber:

Subscription

Cost per month

Netflix

$9.99

Amazon Prime Video (if paid monthly)

$8.99

Spotify

$9.99

Office 365 Home

$9.99

Scribd

$9.99

Total monthly subscription fees

$48.95

Additional 6 percent tax in Pennsylvania

$2.94

Additional tax on annual basis

$35.28

 

This does not account for any one-time purchases like apps, games or digital videos.

Insider Take:

As city and state governments face budget shortfalls, they are looking to fill the gaps to provide needed services to their constituents. A number of municipalities – Chicago, Alabama, Pasadena, Pennsylvania – have already set a precedent by extending existing taxes, and more are sure to follow.

Unless the legality of the taxes is challenged in court, this is trend we expect to see much more of in 2017. Consumers don’t have much recourse, and in cities and states where taxes are as high as 11 percent, it could make a difference between having one streaming video service versus two or three.

 

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