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Pennsylvania Will Soon Tax Netflix; Chilling Still Free

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By Christopher Coble, Esq. on August 09, 2016 12:59 PM

Referred to as the 'Netflix tax,' Pennsylvania will soon start charging a sales tax on digital downloads and online streaming services. The six percent tax will apply to video, music, and app subscription services like Netflix, Hulu, Spotify, and Apple Music.

So is binge watching about to bust your budget? Probably not, and here's why:

(Not) Pay Per View

The six percent sales tax is applied only to the subscription fee, not to each show or movie you watch or song you listen to. So when you pay your $11.99 a month for Netflix Premium, that's when you pay the sales tax. And you won't be taxed when you call in sick to finish the entire Season 3 of House of Cards in one sitting. (And for those of you who don't like math, that comes out to around $8.63 per year to ignore your pet and the dishes for 4 hours a night.)

Location, Location, Location

Also, Pennsylvania's streaming tax is based on billing address, and we're just going to guess that not every Pennsylvania resident blowing through past seasons of Grey's Anatomy is logging on with their own account. We're not telling you to log on to Netflix with someone else's account (after all, you might go to jail for that), we're just pointing out that Pennsylvania's tax only applies to account's registered with a Pennsylvania address.

Taxing the Internet IRL

Cities, states, and the federal government have long had the authority to tax product and service sales, but figuring out how to apply that to internet sales and services has proved challenging. It's one thing to tax point-of-sale DVD purchases, but how do you tax DVD rentals arranged online?

And this is no small thing for states to try and figure out -- according to Yahoo Finance, annual DVD sales plummeted from $20.2 billion to just $10 billion over the last decade. That's left states like Pennsylvania and Kentucky and cities like Chicago looking to replace that lost revenue with telecommunications and "cloud taxes." So even if you don't live in the Keystone State, your streaming might get a little more expensive in the future.

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