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Alabama Nixes Proposed Tax on Video Streaming, Digital Rentals

28 Aug, 2015 By: Erik Gruenwedel

State had planned to follow Chicago, which recently imposed a 9% amusement tax on subscription streaming services such as Netflix

Taxes in politically conservative Alabama are as popular as a Crimson Tide college football loss. Thus, it wasn’t surprising when the Alabama Department of Revenue last month retracted a regulatory amendment that would have effectively imposed a 4% rental tax on streaming services such as Netflix.

The department in June sought to extend taxes on rental digital transmissions, including transactional video-on-demand movies, TV shows, subscription streaming and audio, effective Oct. 1.

The proposed tax (ADOR Rule No. 810-6-5-.09 Leasing and Rental of Tangible Personal Property) came as consumer migration toward digital entertainment supplants packaged media transactions, resulting in lower per-unit rental taxes. The city of Chicago earlier this year succeeded in extending a 9% amusement tax on SVOD — a move now being considered by municipalities and state government nationwide.

But after opposition from lawmakers, industry practitioners and corporate business, the proposed tax in Alabama was scuttled. Lawmakers, in their opposition, said the proposed tax was beyond the scope of the Alabama Department of Revenue, and should be determined and administered by the Legislature.

“In our opinion, the proposed regulation far exceeds the authority of the Department by imposing a new tax, thereby intruding into the exclusive province of the Legislature,” Business Council of Alabama CEO William Canary wrote state lawmakers. “As you are aware, there is no provision in the Alabama Code that imposes a tax on streaming content.”

The estimated annual revenue loss from the nixed tax reportedly ranged from $5 million to $10 million.

"Every state that has attempted to tax streaming video has done so by legislation, not by regulation or by audit," Bruce Ely, a tax attorney with Bradley Arant Boult Cummings in Birmingham, told The Associated Press earlier this year.

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