New governor cancels hearing for revived ‘Netflix’ rule

At the request of Gov. Kay Ivey, the Alabama Department of Revenue canceled a Tuesday, April 11, public hearing on subjecting digital transmissions to the state’s rental tax.

It is unclear if the new governor, who was sworn into office Monday, or the Legislature will initiate any further action to stop this process. The department notice canceling the meeting stated that public comments in writing would be accepted through April 21.

The department is seeking to collect rental taxes on on-demand movies, television programs and streaming audio and video as well as other digital transmissions by amending Rule 810-6-5-.09.  In 2015, the department withdrew a similar rule after members of the Alabama Legislature’s Joint Committee on Administrative Regulation Review said making such decisions was legislative purview, not an administrative function.

Under the proposed rule, providers of cable or satellite television, online movies and digital music, plus others providing digital transmissions would be considered “engaged in the business of leasing tangible personal property and shall be subject to the rental tax.”

The proposed rule excludes monthly video programming subscriptions that allow the customer to view “pre-set linear programming on the provider’s pre-set schedule,” if such charges are stated separately on the invoice and if “the nonlinear programming associated with the subscription is of nominal value.” The rule doesn’t define linear, nonlinear or nominal value.

The rental of items such as cable boxes, remote controls, modems, and routers, which perform additional functions besides the accessing of basic cable, would be subject to the tax. The rule would apply to transactions that occur on or after July 1, 2017.

In the proposed rule, the Revenue Department is taking the position that digital transmissions constitute “tangible personal property” and thus are subject to the tax.

Senate President Pro Tem Del Marsh, R-Anniston, formed a study group last year to study taxation of digital goods, but the group came to no consensus.

SOURCES: Alabama Department of Revenue and Jeff Patterson LLC