Netflix’s headquarters in Los Angeles. (Courtesy of Netflix)
Netflix subscriptions are tangible personal property and therefore subject to Colorado sales tax, a state appeals court has determined, overturning a Denver judge’s ruling last year that found the subscriptions cannot be taxed because they cannot be touched.
“Absurd results would follow if physical touch were a prerequisite of tangibility for the purposes of the sales tax statute,” a three-judge panel of the Colorado Court of Appeals said.
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, Netflix sued the Department of Revenue in Denver District Court in 2023. And it won.
“Netflix’s streaming service, while capable of being seen, is not capable of being touched and therefore is not taxable under the 1935 law,” Judge Sarah Wallace determined then.
The state quickly appealed that decision to the Court of Appeals. The question before the court was the same question Wallace had to contend with: Are streaming service subscriptions tangible, or “corporeal,” property under Colorado’s 90-year-old state sales tax law?
Netflix, like Wallace, contended that only items that can be touched are taxable. The revenue department sought a broader definition, arguing that anything perceptible to the senses is tangible.
The Court of Appeals looked first to ancient Rome, which defined corporeal as touchable, before determining that a more modern definition is necessary. It found an Arizona court ruling from 1943 that taxed the playing of “automatic phonograph machines,” or jukeboxes.
“The images and sounds that a Netflix subscription permits customers to view and hear physically exist because subscribers can perceive them with their eyes and ears; they are not abstractions. A Netflix subscription must therefore be corporeal,” the court ruled July 3.
“We conclude that Netflix sells tangible personal property at retail,” its judges explained.
Netflix was represented by Stephanie Kanan with Snell & Wilmer in Denver, who did not answer a request for comment about the ruling. The Department of Revenue was represented by Assistant Attorneys General Anne Mangiardi, Emma Garrison and Kevin Chen.
“The department does not comment on litigation,” Revenue Department spokesman Derek Kuhn said.
Netflix’s headquarters in Los Angeles. (Courtesy of Netflix)
Netflix subscriptions are tangible personal property and therefore subject to Colorado sales tax, a state appeals court has determined, overturning a Denver judge’s ruling last year that found the subscriptions cannot be taxed because they cannot be touched.
“Absurd results would follow if physical touch were a prerequisite of tangibility for the purposes of the sales tax statute,” a three-judge panel of the Colorado Court of Appeals said.
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, Netflix sued the Department of Revenue in Denver District Court in 2023. And it won.
“Netflix’s streaming service, while capable of being seen, is not capable of being touched and therefore is not taxable under the 1935 law,” Judge Sarah Wallace determined then.
The state quickly appealed that decision to the Court of Appeals. The question before the court was the same question Wallace had to contend with: Are streaming service subscriptions tangible, or “corporeal,” property under Colorado’s 90-year-old state sales tax law?
Netflix, like Wallace, contended that only items that can be touched are taxable. The revenue department sought a broader definition, arguing that anything perceptible to the senses is tangible.
The Court of Appeals looked first to ancient Rome, which defined corporeal as touchable, before determining that a more modern definition is necessary. It found an Arizona court ruling from 1943 that taxed the playing of “automatic phonograph machines,” or jukeboxes.
“The images and sounds that a Netflix subscription permits customers to view and hear physically exist because subscribers can perceive them with their eyes and ears; they are not abstractions. A Netflix subscription must therefore be corporeal,” the court ruled July 3.
“We conclude that Netflix sells tangible personal property at retail,” its judges explained.
Netflix was represented by Stephanie Kanan with Snell & Wilmer in Denver, who did not answer a request for comment about the ruling. The Department of Revenue was represented by Assistant Attorneys General Anne Mangiardi, Emma Garrison and Kevin Chen.
“The department does not comment on litigation,” Revenue Department spokesman Derek Kuhn said.
