The Hidden Tax Hike: Streaming Services Targeted by Local Governments
Dear John,
Frequent readers know that California law insists that cities get voter approval to raise taxes or levy new ones — often to meet government unions’ demands on everything from higher pensions to more staff.
But a new scheme to treat streaming services like a "utility" is being pushed to local governments as a way to increase revenue without voters' okay — and it's coming to a city near you.
Enter Avenu Insights, a D.C. political consulting firm that has a new strategy for shaking down global entertainment companies that, because they’re global, operate within a city's limits.
In the private sector, entrepreneurs hire consulting firms for a variety of reasons: streamlining efficiency, cutting waste and revealing hard truths to an organization's management. But a quick visit to Avenu Insights’ website reveals the firm makes its money by helping governments with “revenue enhancement.” That’s what you and I call “taxes.”
Yet Avenu’s team boasts they’ve found a loophole to boost taxes city by city without voter approval.
It’s a play on an old idea. Utility User Taxes (UUTs), originally designed to cover services like electricity, water, and cable TV, were a natural way for cities to charge residents for the infrastructure that the city had to coordinate.
Take for example cable — a utility that’s maintenance requires coordination between homeowner, city and a company. Baked into each monthly cable bill is a city fee to cover the cost of that coordination and infrastructure. But as technology outpaces the need for this infrastructure, more Californians are cutting the cord, opting instead for streaming services.
Internet and phones are the same — the technology that used to be a physical wire can now be wirelessly provided through towers in your area. No coordination. No need for the government.
But if you change the concept of “utility” to be anything you want to tax, you can get around the need to have citizens actually vote. Netflix? Utility. Microsoft Teams? Utility. Even ESPN+ now qualifies as a utility. With the stroke of a pen, cities can begin charging taxes on services never before considered part of their traditional purview.
In Santa Barbara, this redefinition cost residents nearly 6 percent more per month on ESPN+. The move is now tied up in litigation with Disney, but the precedent is set. Taxes, it seems, can be raised without ever going to voters for approval.
This strategy allows municipal governments to sidestep the need for politically vulnerable ballot initiatives to raise taxes or voter outreach. And, they can get away with it with the minimum level of transparency.
Avenu pitches this not as taxation but as “recouping lost revenue.” To them, it's the same money that would have flowed in naturally if the world hadn’t shifted away from products they already got approval to tax. To Avenu, cities have the right to that revenue.
If you think the government silently adding new taxes is bad, you should see where the funds are being directed. In Sacramento, for example, public records reveal that Avenu not only charges a consulting fee but takes a 20 percent cut of any revenue the city gains through these new “revenue enhancements.” If Sacramento decides Netflix or Hulu is suddenly tax delinquent, Avenu enjoys a share of the back taxes.
The role of consultants like Avenu raises an uncomfortable question: Are cities really being transparent with their residents?
The answer has long been no.
Avenu isn’t doing anything new. They are following the same playbook long used by government unions: fund your big-government advocacy through tax dollars to negotiate against the taxpayer.
Across the state, CPC is educating local elected officials on principled governance, fiscal responsibility and how to stand up to the demands of government unions and special interests. If you would like to support our efforts, please consider supporting CPC’s outreach and training programs by clicking this link.
— By Jackson Reese, Executive Vice President, California Policy Center
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