Alabama Department of Revenue Considers Taxing Streaming Video and Music

In recent years, a growing number of Americans have begun shifting away from traditional sources of music and entertainment, turning instead to internet-based streaming services like Netflix and Pandora. However, a recent proposition has made many Alabamans think about putting down the remote. In April, the state Department of Revenue began considering a plan to tax digital transmissions, including “on demand” movies, television programs and streaming video and audio. Fortunately, a number of legislators have stepped in, stating their opposition to the digital streaming tax.

Revenue officials say the planned tax isn’t a new idea, but rather an update to existing tax code, which dates back to the days of corner video stores. At the time, customers would pay a rental tax every time they borrowed a movie to play in their VCR. Now, with more viewers turning to online service, Alabama is expected to lose millions. As a result, the Department of Revenue has proposed a new rule, which would require companies to pay a 4% state tax on digital transmissions. If passed, the new tax could go into effect on October 1.

Tax experts say that Alabama would join a small number of other states that have also begun taxing streaming video. However, it would be the first to establish such a fee without legislative action, a fact that has ignited controversy across the state government. Opponents have argued that the Department of Revenue isn’t able to broaden the tax base by taxing a relatively new industry without the approval of the Alabama Legislature. Recently, several lawmakers repeated this argument in a letter to the revenue commissioner, Julie Magee. The letter, which was obtained by the Associated Press in May, was signed by Speaker of the House Mike Hubbard, current Senate President Del Marsh, and several other prominent legislators.

Previously, tax commissioners have indicated that they would be open to input from lawmakers. However, the department has argued that the state is missing out on a significant amount of revenue by not collecting a digital transmission tax: while officials say it is impossible to know the exact amount without accurate sales data and admit that the figure likely couldn’t solve the budget problems, the department estimates that the lost taxes are between $5 million and $10 million.

However, numbers aside, the biggest issue with the updated tax is its clarity and extent: because the existing rental tax applies to tangible property, tax experts are unsure how this required tangibility would affect digital media. Alabama courts have long held the position that something isn’t necessarily property just because it can be seen or heard, which some tax attorneys say could apply to music streaming services like Pandora, where the user receives a service, not the rights to the digital song.

Meanwhile, other experts have speculated that the digital transmission tax could eventually extend to all digital media, including streaming movies and music and even online documents. With such a possibility looming in the balance, it might be wise to schedule your last Netflix binge before the tax takes effect. Remote not working? Never fear: one in three dead remotes can be saved with a simple five-step restart procedure.