“If a city is going to tear up the ground to lay cables, the companies that are going to benefit should pay,” said Richard Auxier, senior policy associate in the Urban-Brookings Tax Policy Center.
When the tiny city of Fort Scott, Kansas, sued media behemoths Netflix Inc. NFLX, +0.34% and Hulu in July, it may have seemed like a long shot. But the premise behind the city’s suit — that streaming entertainment companies are freeloading on internet infrastructure built and maintained by cable companies and municipalities, and should pay for that use — may not end in Bourbon County District Court.
Fort Scott is invoking principles known as “right-of-way” principles. As the city said in its suit, “Defendants’ subscribers typically use a broadband internet connection, such as DSL or fiber-optic cable, to receive Defendants’ programming. These broadband internet connections rely upon wireline facilities located in whole or in part in the public right-of-way to deliver internet service to subscribers.
Missouri state laws and local ordinances “state that the definition of video service ‘does not include … any video programming provided solely as part of and via a service that enables users to access content, information, electronic mail, or other services offered over the public Internet,’ the company said. “This exclusion describes the Netflix Streaming Service exactly.”
That legislation died before becoming law, and states do have the right to impose sales taxes on streaming services, just as they do on any other good or service. “Then the court decision came and nothing happened,” Auxier said. “That turned out to be because people were not buying online to evade taxes. They were buying online for other reasons” — convenience, a broader selection than what was available in stores, and so on.
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