October 5, 2015

Netflix Prevails at Kentucky Board of Tax Appeals

Written By

By Erica Horn and Maddie Schueler

The Kentucky Board of Tax Appeals (the “KBTA”) recently held Netflix’s streaming service does not qualify as “multichannel video programming service” (“MVPS”) and is not subject to the gross revenues tax and excise tax on MVPS, imposed pursuant to KRS § 136.616 and KRS § 136.604, respectively; and the utility gross receipts license tax, imposed pursuant to KRS § 160.614(6).  Netflix, Inc. v. Finance and Administration Cabinet, Dep’t of Revenue, File Nos. K13-R-31 & K13-R-32, Order No. K-24900 (KBTA Sept. 23, 2015).  MVPS is defined by Kentucky’s statute as “programming provided by or generally considered comparable to programming provided by a television broadcast station and shall include but not be limited to: (a) Cable service; (b) Satellite broadcast and wireless cable service; and (c) Internet protocol television . . . .”  KRS § 136.602(8)(emphasis added).  A hearing was held before the KBTA in October 2014 and a supplemental evidentiary hearing and oral argument was held in July 2015. 

In its Order of September 23, 2015, the KBTA held Netflix’s streaming service is not “generally considered comparable to programming provided by a television broadcast station.”  The KBTA noted that “Netflix does not provide any live programming, such as sports, news, and award shows, nor does it provide any linear programming, which means there is a set time schedule for the programming.”  The KBTA found that while Netflix’s streaming service and “on demand” television services provided by broadcast and cable companies may be similar, the “on demand” feature is only an incidental part of broadcast and cable television services programming.  The KBTA further stated that while broadcast and cable services require the use of a television, Netflix is only available via the internet.

The KBTA also held Netflix’s streaming service does not fall within the statutory definition of “cable service” under KRS § 136.602(1).  In its analysis, the Board noted Kentucky’s definition of “cable service” appeared to track “at least some” of the language used in Florida’s communications tax statute; but, there were significant differences.  Netflix acknowledged that it pays the communications tax on its streaming service in Florida because Florida’s statute, as the Board determined, specifically includes “digital video” where Kentucky’s statute did not. 

The KDOR has until October 23, 2015 to appeal the KBTA’s decision to the circuit court.

The authors’ firm is co-counsel for Netflix.