California Court of Appeals Upholds Local Tax on Streaming Services

The California Court of Appeals released an essential ruling in a case between several streaming entertainment companies, Platform Distribution, Inc.,  BAMTech, LLC, and Hulu, LLC, all subsidiaries of the Walt Disney Company, and the City of Santa Barbara. The dispute arose from the Santa Barbara government's claims that streaming companies owe local taxes under the City’s Telecommunications and Video Users’ Tax Reduction and Modernization Ordinance (Ordinance).

Fact of the Case and Court's Decision

In 2022, the City’s Tax Administrator issued deficiency notices to streaming companies, stating that they had failed to collect and remit the video users’ tax for the period from January 1, 2018, through December 31, 2020. The total unpaid local tax, including penalties and interest, amounted to USD 506,117 for Hulu, USD 37,270 for BAMtech, and USD 68,950 for Disney Platform Distribution.

Streaming companies appealed against the notice, where the Hearing Officer upheld the Tax Administrator’s determination. As a result, companies sought judicial review by filing a petition for a writ of administrative mandate in the Trial Court. Still, the Court denied their petition, and the companies have appealed against that decision as well.

The Court of Appeals clarified that under the Ordinance, video services encompass not only video programming but also any services related to providing, recording, delivering, or enabling the use of that programming, regardless of the technology used. As a consequence of the Court of Appeals' interpretation, the video users’ tax applies whether the video is delivered through traditional cable with a direct transmission path or via streaming services accessed through an internet service provider. 

Conclusion

By ruling that the Ordinance captures modern streaming platforms just as it does traditional cable providers, the Court of Appeals upheld the lower court’s decision. As a result, the streaming companies and other digital video services are liable for the local 5.75% tax because they provide video services to homes and businesses in Santa Barbara. However, the main condition for the City to apply this tax is to structure it around service categories rather than the mere use of the internet.

Source: California Court of Appeals - Case B342211