You may not be able to hold it in your hands, but it appears you should be paying state sales tax on your Netflix subscription.
In a 19-page ruling that featured extensive analysis of the word “corporeal” — as well as ruminations on an Arizona law covering the taxation of jukebox sales — the Colorado Court of Appeals overruled a district court and found that the streaming giant’s subscriptions are subject to state sales tax.
“Casting aside nearly a century of historical practice simply because technological advancements have altered the specific form of delivery — while leaving the product itself largely unchanged — is a step that we are not willing to take,” the opinion, written by Judge Matthew Grove, read.
At issue was whether or not a subscription like the ones offered by Netflix amounts to tangible personal property. Netflix argued that such a definition only includes physical objects that can be both seen and touched. Colorado’s sales tax law, enacted in 1935, refers to such property as “corporeal personal property.” The use of the word “corporeal” led to lengthy legal discussions around the meaning of the word.
“Netflix contends that ‘tangible personal property’ includes only physical objects that have a real body that can be both seen and touched. The (Department of Revenue), meanwhile, argues for a broader understanding of the statute’s coverage — asserting that tangible personal property includes things that are perceptible to the senses,” the ruling said.
In siding with the Department of Revenue, the Court of Appeals went as far back as a 1933 law dictionary to examine how legal experts would have understood the word “corporeal” back when the original sales tax law was passed in Colorado. A full 8 years before the United States entered World War II — and 64 years before a company that mailed DVDs in red envelopes was founded — the law understood “corporeal” to mean something that can be “perceived by any of the senses — not exclusively the sense of touch.”
In one example, the court noted an Arizona law governing sales taxes on “single plays from ‘coin operated electric automatic phonograph machines’ — essentially jukeboxes — were subject to state sales tax because ‘the playing of the record is perceptible to the sense of hearing.’”
The Court of Appeals remanded the case back to the lower court but not before acknowledging the cascading effect that a different interpretation could have.
“Finally, we observe that absurd results would follow if physical touch were a prerequisite of tangibility for the purposes of the sales tax statute,” the court ruled. “It is a reality of modern life that substantial amounts of goods previously existing only in a form susceptible to touch are now routinely and increasingly sold in digital form — photographs, music, television shows, movies, newspapers, magazines, and educational content, to name just a few. The legislature obviously intended to tax such goods when passing the sales tax statute.”
