Entertainment Can Be Taxing

If you were going to Blockbuster in the ’90s, you probably won’t remember paying sales tax on your movie rental, unlike me who checks for tax on every transaction. Fast forward to the early 2000s, you probably didn’t realize you were paying sales tax on a Redbox rental movie. Like me, if you’re wondering why you’re paying sales tax on a rental, it’s because a “rental” is included in the definition of a sale for tax purposes. For example, in Pennsylvania, a DVD is taxable when being sold. This means it generally is also taxable when it is rented.

Nowadays with technological advances and a desire for convenient and immediate entertainment, most Americans are using streaming services. While Redbox is still around, its fastest-growing service is its on-demand feature where you no longer need to leave your sofa to rent a movie or show. With our ongoing pandemic, many households have opted to subscribe to online streaming services that include Netflix, Amazon Prime Video, Hulu, Disney+, and more. How are the states responding to the change from tangible sales and rentals to digital sales or rentals? 

Well, there is no straight answer. Some states believe that if they’re charging sales tax on tangible DVDs, video games, etc., they should charge sales tax on digital movies, video games, etc. Other states believe that digital products are intangible and thus are not taxable.

When it comes to streaming services, it might be a little more straightforward. More and more we see “services” becoming taxable in more states. Regardless of whether a service is provided digitally (software services, telecommunication, etc.) or physically (pest control, motor vehicle services, etc.) in many states, the service is taxable.

As the world keeps moving online, states will be impelled to compensate for the decreased revenue from the decreased sales of non-digital movies, video games, and music. We’ll most likely continue to see more and more states finding new ways to tax digital sales, rentals, and services.

By: Priya Sorathia

This blog is intended for educational purposes and not as tax advice. Tax policies and procedures change frequently, so specific information, such as thresholds, rates, etc. included in this blog may have changed since it was originally published. Please request a consultation for more in-depth information.