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The Courts Technology

Netflix, Hulu Argue They Aren't 'Video Service Providers' Before Ohio Supreme Court (cleveland.com) 36

Posted by msmash from the closer-look dept.
An anonymous reader shares a report: A federal class-action lawsuit involving Maple Heights and 2,000 other U.S. communities against Netflix and Hulu took a detour Wednesday through the Ohio Supreme Court, with Maple Heights officials asking state justices to define the streaming giants as "video service providers." If the Supreme Court agrees, the streaming services would be subject to the same video service provider fees paid by cable companies. Those fees in Ohio are 5% of the companies' gross revenues they earn in the city and go directly into city coffers. The streaming companies argued they are instead "specified digital products" under state law. Therefore, they pay state sales taxes, and Ohio would lose money if the court determines they owe the local franchise fees since they would be exempt from state sales tax under Ohio law. The Ohio Supreme Court will determine whether Netflix and Hulu are video service providers, among other legal questions, in the coming months. After the Ohio Supreme Court issues an opinion, the case in federal court in Cleveland can resume. That case involves around 2,000 cities, but U.S. District Judge James Gwin directed the Ohio Supreme Court to answer legal questions first.
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Netflix, Hulu Argue They Aren't 'Video Service Providers' Before Ohio Supreme Court More

Netflix, Hulu Argue They Aren't 'Video Service Providers' Before Ohio Supreme Court

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  • What are they then? Seems pretty cut and dry.
    Unless "Video Service Provide" means something weird in Ohio

    • Re:Hmm (Score:5, Informative)

      by drinkypoo ( 153816 ) <drink@hyperlogos.org> on Friday April 15, 2022 @12:21PM (#62449636) Homepage Journal

      I'm absolutely not going to spend the time to read and try to understand the relevant law myself [ohio.gov], but TFA addresses this point (and links the above PDF.) Their explanation is that this is really about cable companies getting the rights to lay cable, and since they don't have any cable, they are not the type of businesses the law was written to regulate. If the article is to be believed, then this is a bald-faced attempt to steal money that the city government is not entitled to take.

      • Re:Hmm (Score:5, Informative)

        by BeerFartMoron ( 624900 ) on Friday April 15, 2022 @12:32PM (#62449664)

        Thanks for the link. Good reading. Ohio should read their own FAQ's: [ohio.gov]

        Q4: What is taxed under R.C. 5739.01(B)(12), "specified digital products"?

        A4: Items, including but not limited to, audiovisual products (such as movies), audio products (such as songs), and books delivered electronically. Tax applies to both temporary and permanent transfer (i.e., need not purchase the product for ownership). Examples are Netflix, HULU, I-Tunes, e-books for Kindle and other electronic readers.

        • I sure hope they enter that FAQ as evidence.

          Not only is it categorically exempt based on the law that passed which is explemeant to cover the cost of cable easements, but the services are mentioned by name as exempt in the state's own publications.

          The state seems to be doing everything wrong for getting tax money from them. It would be a difficult fight to claim they really did need to pay taxes without a legislative change.

        • Re: (Score:2)

          by lsllll ( 830002 )
          Hmmm, so that page is not present on archive.org, which means that either it's new and they just put it up for this lawsuit, or archive.org did not scan the page. I'll let it up to you to determine what actually happened.

    • Re: (Score:3)

      by jmccue ( 834797 )

      Yes, but the real question is how much revenue will be applied to people viewing in Ohio ?

      As we all know, Judges have no clue with tech, I guess they never heard pf VPNs. How can the revenue be split among various states ?

      If Ohio wins, I wonder if these companies will route everyone's stream through a state without this tax ?

    • Are there even analog cable providers anymore? No taxes for everyone!

    • Re:Hmm (Score:5, Informative)

      by UnknowingFool ( 672806 ) on Friday April 15, 2022 @12:34PM (#62449676)
      From the article:

      “The statute is very clear. This is about those who dig. They must pay,” she said. “If they don’t dig, they don’t pay. And I think that is the core principle that animates this entire case.”

      It seems the way Ohio has defined "video service providers" would narrow it to industries like cable companies as the original statute dealt with things like right-of-way of wiring. Netflix and Hulu argue that if they are subject to the 5% fee then anyone who streams is also subject to the fee regardless if the streamer makes any money. For example, a YouTuber or a Twitch streamer or any other platform.

    • Re: Hmm (Score:3, Interesting)

      by raspberry-fly ( 9638468 )
      The original argument was that if cable television used city owned infrastructure to lay cable that the city should get access to the data stream those cables carried much like any other infrastructure. Public access television stations have always been funded through these fees, which in theory provide democratic access to city council meetings and access to the mass media that used to be only available to the very rich. Obviously the internet has changed everything, but this case could go a long way in fu

      • Re: (Score:2)

        by xalqor ( 6762950 )

        It's not the right way to do it. The right way would be to pass a new law that does what they want. If they want to tax something, they need to tax people who live there or businesses that operate there (physically). The 21st century money you're after should be collected at the state or federal level and then distributed to cities that need it.

    • Generally speaking, nothing related to the law is ever cut and dried.

    • According to the supreme court they are vegetables anything to get a higher tax income

    • What are they then? Seems pretty cut and dry.

      If a video service provider is like a broadcaster, the defining characteristic is when you have multiple customers who are able to watch exactly the same video feed in realtime.

      So, streaming services that offer live TV are video service providers. Streaming services that don't offer live TV are basically just glorified file hosting providers (as can be easily proven by looking at the number of "web-dl" piracy releases of content from streaming services).

  • The Maple Heights sales tax rate is 8%. That is 5.75% Ohio state sales tax plus 2.25% Cuyahoga County sales tax. If the city wins they would receive 3% less tax revenue from subscribers. Unless Netflix and Hulu are generating revenue in Ohio from some other source, this sounds like the state is negotiating a pay cut.

    • Re: (Score:2)

      by dryeo ( 100693 )

      Does sales tax apply to streaming services there? Here, the Provincial sales tax doesn't apply to services, the Federal GST (Goods and Services Tax) does.

  • If they are classified as Video Service Providers, they have to pay fees of 5% of gross revenue to individual cities. (And these fees would no doubt be covered by price increases).

    If they are classified as "specified digital products", then the state sales tax they are paying is coming directly from the consumer anyway and isn't considered an expense to them. Ohio's state sales tax is 5.75% so it costs consumers a bit more than the 5%, except that there are probably other revenue streams that would be im
    • Two things to note is that the state attorney general and solicitor general disagree with the city on their interpretation of state law and actually argued for Netflix and Hulu. Also the city did not fully address why they did not include Apple nor any other service in the suit.

  • Regulations (Score:3)

    by crow ( 16139 ) on Friday April 15, 2022 @12:29PM (#62449660) Homepage Journal

    If the issue were as simple as either paying the 5% tax to municipalities like cable companies or paying 5.75% sales tax, then it would seem like the streaming services should be happy with either, and certainly wouldn't be fighting against the lower rate. Clearly there's a lot more going on here, and most likely the law imposes a lot of regulations on "video service providers" that they want to avoid. One example may be carrying public access channels. There may be lots of other impacts, including content restrictions.

    • Re: (Score:3)

      by bws111 ( 1216812 )

      Sales tax is paid by the customer. The fee is paid by the company on gross revenue. Those are not the same.

  • Didn't your country quit Britain in order to have simple, low, taxes and a right to be represented if taxed?

    Just... curious.

    Seriously, the problem lies in the complexity. They're video services. They are also digital services, but as analogue is increasingly abandoned (analogue POTS vanished a long time ago and all telephones will be VOIP before long), taxing digital services separately seems a relic.

    Firstly, they need a much simpler tax code based on resource use (in the case of cable laying, this would be

    • It is actually simpler than that. The city of Maple Heights wants services like Netflix to pay fees based on their reading of a state statue regarding cable companies not streaming services. However the state attorney general and solicitor general actually argued on behalf of Netflix and Hulu that Maple Heights interpretation was incorrect,

  • Ohio cities are desperate (Score:3)

    by laughingskeptic ( 1004414 ) on Friday April 15, 2022 @01:47PM (#62449966)
    Before COVID Ohio cities collected income tax on the wages earned in their cities regardless of where people lived. When people started working from home in suburbs the state legislature gave the cities the temporary right to continue taxing people they shouldn't be able to under their state laws. This year they were allowed to collect the income tax, but are required to refund it if the person did not actually work in their city any more. Refund time is here and the cities probably do not have the money in the bank to refund the money they collected. The cord cutting is resulting in additional, though lesser, losses of revenue for Ohio's cities, but the larger the city, the more likely it is staring down bankruptcy at the moment. The cities are desperate and have signed up as a class hoping a judge will rule in their favor despite the clear guidance in Ohio's laws. Corruption, especially political corruption is rampant in Ohio. The locals have the advantage over national businesses that are unlikely to cough up bribes ... so they have a chance of winning this issue, but it will not be enough to save them.

    • Both work and residence cities levy income taxes, though, usually, some percent of taxes paid to a work city are credited to the residence city.

      While I'm not fully familiar with Maple Heights' finances, it is definitely one of the poorer of Cleveland's inner suburbs, and was in a state of financial emergency for much of the previous decade. It has lost most of its middle class (I wouldn't say all, but definitely most), and it's my experience that communities tend to become more corrupt, not less, when that

  • Does this mean when I download Stranger Things next month it won't count as Piracy?

  • Seems all the midwestern states are overridden with excessive taxation and still on the hunt for more.

    No wonder they are all losing population.

    Glad I left a long time ago . . .

  • I remember being outraged when cable was made a "utility". On one hand it meant all apartment buildings were required to add cable hookups just like they were required to offer electric and water services. Which then, of course, increased the price of the building which was passed off as rent increases.

    On the other hand...this also meant more low income families would then have access to subsidized internet services. I see that as a win.

    This then brings up the question on whether in Ohio the above logic wou

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