Netflix and Tax Bill

By Daily Editorials

September 30, 2016 4 min read

Consumers are "cutting the cord" with cable companies in favor of video streaming services with increasing regularity, but in Pasadena, and perhaps many other cities, they still will not be able to avoid the taxman.

Pasadena Finance Director Matthew Hawkesworth made a ruling last week that video games and streaming services similar to cable — such as Netflix, Hulu and HBO Go — will be subject to the city's 9.4 percent utility user tax for cable TV beginning Jan. 1.

At least 45 other cities — including San Bernardino, Glendale, Santa Monica, Culver City and Pico Rivera — have been advised by MuniServices, a company that provides revenue recovery consulting and administrative services to local governments, that they can impose their existing cable taxes on video streaming services as well. These cities' UUT rates range from 4.5 to 11 percent.

About 146 California cities and four counties — which is approximately 30 percent of the state's municipalities, but which cover roughly half the state's population — have a UUT, according to UUTs are most commonly levied on telephone, electricity and gas services, a July 2015 analysis from revealed, although a little more than half of local governments with UUTs — covering roughly 20 percent of California residents — apply them to cable television and water services as well, and a small number impose them on sewer and garbage services. These taxes generate a total of nearly $2 billion in revenue per year statewide.

The tax is "very suspect," according to John Coupal, president of the Howard Jarvis Taxpayers Association. "We will be taking a very close look at this," Coupal told the Pasadena Star-News. "If we determine this is an extension of an existing tax, then under the [state] Constitution, they need voter approval. They can put as much lipstick on this pig as they want, but the pig is still a tax increase."

There was also dissent on the Pasadena City Council. "Cable has been a hardship for many families and now we're going to add a hardship to them," Councilman Tyron Hampton asserted to the Star-News. "Next we'll be taxing you for streaming music on Pandora. This is ridiculous."

Perhaps he shouldn't give the city any ideas.

The city is unapologetic about its decision, however. "There are a lot of things that are done through the internet that are taxed," Hawkesworth, the city's finance director, told the Star-News. "Pasadena isn't unique in this. There are many, many cities considering it."

Indeed, such taxes are already imposed in Minnesota, Chicago and Canada, and Pasadena looks to set an example in California.

But, as your mother may have told you when you were young, just because others are doing something doesn't make it right.

Utility user taxes are just another excuse for local government money grabs. They are simply one more way for the government to fund services that should be financed through more traditional revenue streams. Rather than seeking more creative ways to pick taxpayers' pockets, local governments should focus more on providing their core, highest-priority services at the highest quality for the lowest cost.


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