OPINION – Nearly 50 years ago, the utility user tax was developed to help cover the cost of infrastructure associated with utilities like gas and electricity. Years later, the tax expanded to cover cable TV and related video. Now, however, some California cities such as Glendale and Santa Barbara are looking to extend this tax to streaming services — a move that strays far from the tax’s original purpose.
While streaming has steadily overtaken other methods of watching TV, its growing market share has not come with the same burden on public infrastructure as cable. Applying the utility user tax to streaming services is a tax on the internet that is prohibited under the Internet Tax Freedom Act and will lead to double taxation, as consumers would be taxed twice—once for internet service through the franchise fees via their ISP and again for each streaming subscription they have through a novel interpretation of the utility users tax. This new and retroactive tax burdens not only consumers but also stifles innovation in the streaming industry, which has been a major driver of growth in the entertainment sector.
Despite streaming’s inapplicability to the utility user tax, local officials are now seeking to retroactively assess and recover hundreds of thousands of dollars in back taxes, as well as impose penalties, interest and fees — all despite not clearly outlining tax requirements in the first place. This retroactive enforcement is not only unfair but also sets a troubling precedent. If taxes approved by voters can be applied in ways that were never intended, it undermines the very principles of transparency and accountability in government.
This not only punishes streaming companies for their ongoing innovation and investment in services to meet consumer demand, but it also impacts consumers too, who would also be forced to foot part of the bill. Under these new rules, consumers would be forced to pay taxes for each individual subscription on top of what they’re already being taxed for their internet service — effectively a double tax for the same infrastructure.
If local regulators can present a tax to voters and then apply it in a completely different fashion, it sets a terrible precedent. California’s Proposition 218 requires a vote every time a new local tax is proposed, and given the expansion of utility user taxes to streaming does not fit the initial intent to cover infrastructure costs, this would effectively be a new tax that voters never approved.
Given the targeted nature of this proposal and its potential financial burden, local officials must halt the expanded scope of the utility user tax.
Dr. David Gonzalez is associate professor of public administration and organizational leadership with University of Massachusetts Global’s School of Business & Professional Studies.