Tax management in the US: What you need to know if you run an OTT service

Dimitar Serafimov| Tue May 07 2019 CET| OTT Industry

As the saying goes: the only certainties in life are death and taxes. And here, we’re going to focus on the latter, specifically, OTT-driven taxation processes in the US.

The US broadcast market is evolving at an incredible rate and as OTT spreads across regions, navigating communications taxation from one State to the next can prove to be tricky. Presently, an OTT business accustomed to calculating sales and use tax alone may have a far more nuanced range of taxes and regulatory fees to tackle.

Here, taxation is starting to be evolving with this new way of consuming video content. The phrase “Netflix taxes” is becoming a reality in some states like Pennsylvania and Florida. Despite this, each state interprets the taxability of video as digital content individually.

Here are some states that are quite interesting to observe (via Avalara):

  • California: After a handful of cities updated their utility user tax (UUT) ordinances to require the collection of tax on video-based services, a draft ruling interpreted such offerings to include streaming video, sparking in-depth discussions around potential new requirements for streaming services in a general sense.
  • Chicago: A  9% amusement tax originally written to tax concert and sporting event tickets was extended to cover streaming-based entertainment such as music, video, and gaming.
  • Iowa: Taxing authorities determined that video streaming services included in Amazon’s Prime model fit its definition of “pay television” and started to assess taxes based on this notion. This opened the door to telecom taxation for other organizations selling streaming video services, whether on a subscription basis or as an element of bundling.

And if OTT based taxation doesn’t seem daunting enough, when bundling really comes into play, things are going to get all the more convoluted.

To help you navigate these taxation challenges, there are four key elements that you (via Deloitte), as an OTT service provider, should consider:

  • Definitions of taxable services count and should be considered accordingly.
  • The location of the consumer in a mobile-based digital age.
  • Tax policy is a work in progress. As the digital age evolves, officials across the globe are struggling to catch up which means that when it comes to tax legislation, nothing fits into a clear, concise box.
  • Nontraditional business partnerships have nontraditional tax consequences. In many ways, it’s a brave new world.

That said, there are measures you can take to face these challenges with success:

  • Track your taxations across all jurisdictions with care and due diligence.
  • During every new deal or initiative, proceed with caution, ensuring everything is water-tight before moving forward.
  • Lock in your marketing and tax teams to communicate concerning new offers, deals, partnerships and strategies on a daily basis to ensure every element of your business is compliant.
  • Prepare your billing system for this wealth of change, ensuring it’s not programmed to bill on a one-size-fits-all, blanket basis.

Tax is a tricky business but hopefully, this information will give you all you need to get off to the best possible start. Good thing is that you can always work with an expert on challenges like these. Cleeng is here to help. 

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