Netflix’s headquarters in Los Angeles. (Courtesy of Netflix)
A Denver judge has ruled that Netflix’s streaming service “is not tangible personal property” and therefore not subject to a state sales tax, saving that company millions of dollars.
In a 19-page decision Friday, Judge Sarah Wallace wrote that under the 1935 law that created the sales tax, only items “which can be seen and touched” are subject to such taxes.
“Netflix’s streaming service, while capable of being seen, is not capable of being touched and therefore is not taxable under the 1935 law,” the judge determined last week.
In 2013, Netflix reached out to the Colorado Department of Revenue and asked that its streaming service not be taxed because it is not tangible. The department declined, audited Netflix, and told the company that it owed $8.5 million in taxes, penalties and interest.
Netflix protested and the department relented, stating that it wished to handle the matter through its rulemaking process rather than enforcement. In 2020, the department proposed a rule to tax streaming services and in 2021, the Colorado General Assembly passed a law that attempted to expand the definition of tangible personal property to include digital property.
Netflix paid state sales taxes in 2021, then requested a refund. When that request was denied, it sued the Department of Revenue last June and asked Wallace to decide the matter.
“Netflix improperly applies present-day vernacular to interpret the meaning of tangible personal property in 1935,” the Department of Revenue wrote in response to the streamer’s lawsuit. “While today we may colloquially speak of goods as being either physical or digital, no such distinction existed when the state legislature enacted the sales tax.”
“Properly understood, the 1935 statute’s concept of tangible personal property includes all things that have an objective, material existence and can be possessed.”
But Wallace didn’t see it that way.
“A sale of tangible personal property requires the sale of a physical object,” the judge wrote Friday, “and Netflix’s streaming service is not a physical object.”
DOR spokesman Daniel Carr declined to comment on the ruling this week. Contact information for a Netflix spokesperson was not available. Its lawyers declined to comment.
Netflix was represented by Stephanie Kanan with Snell & Wilmer in Denver and three lawyers from Latham & Watkins, a multinational firm. The Department of Revenue was represented by Assistant Attorneys General Anne Mangiardi, Emma Garrison and Kevin Chen.
Netflix’s headquarters in Los Angeles. (Courtesy of Netflix)
A Denver judge has ruled that Netflix’s streaming service “is not tangible personal property” and therefore not subject to a state sales tax, saving that company millions of dollars.
In a 19-page decision Friday, Judge Sarah Wallace wrote that under the 1935 law that created the sales tax, only items “which can be seen and touched” are subject to such taxes.
“Netflix’s streaming service, while capable of being seen, is not capable of being touched and therefore is not taxable under the 1935 law,” the judge determined last week.
In 2013, Netflix reached out to the Colorado Department of Revenue and asked that its streaming service not be taxed because it is not tangible. The department declined, audited Netflix, and told the company that it owed $8.5 million in taxes, penalties and interest.
Netflix protested and the department relented, stating that it wished to handle the matter through its rulemaking process rather than enforcement. In 2020, the department proposed a rule to tax streaming services and in 2021, the Colorado General Assembly passed a law that attempted to expand the definition of tangible personal property to include digital property.
Netflix paid state sales taxes in 2021, then requested a refund. When that request was denied, it sued the Department of Revenue last June and asked Wallace to decide the matter.
“Netflix improperly applies present-day vernacular to interpret the meaning of tangible personal property in 1935,” the Department of Revenue wrote in response to the streamer’s lawsuit. “While today we may colloquially speak of goods as being either physical or digital, no such distinction existed when the state legislature enacted the sales tax.”
“Properly understood, the 1935 statute’s concept of tangible personal property includes all things that have an objective, material existence and can be possessed.”
But Wallace didn’t see it that way.
“A sale of tangible personal property requires the sale of a physical object,” the judge wrote Friday, “and Netflix’s streaming service is not a physical object.”
DOR spokesman Daniel Carr declined to comment on the ruling this week. Contact information for a Netflix spokesperson was not available. Its lawyers declined to comment.
Netflix was represented by Stephanie Kanan with Snell & Wilmer in Denver and three lawyers from Latham & Watkins, a multinational firm. The Department of Revenue was represented by Assistant Attorneys General Anne Mangiardi, Emma Garrison and Kevin Chen.
