Colorado Court of Appeals rules Netflix subscriptions are “Tangible Personal Property” and taxable under Colorado law

In a significant victory for the Colorado Department of Revenue, the Colorado Court of Appeals ruled this week that Netflix subscriptions are “tangible personal property” and therefore taxable under Colorado law, reversing a lower court decision that had exempted the streaming giant from taxation.

Netflix v. Department of Revenue centered on a seemingly simple question with complex implications: Are digital streaming subscriptions “tangible personal property” under Colorado’s nearly century-old sales tax law? The answer, the Colorado Court of Appeals ruled, is yes.

Netflix argued that its subscriptions do not qualify as taxable tangible property because customers can’t physically touch streaming content. The company successfully argued in the district court that sales tax only applies to goods that can be “seen and handled,” where it was seeking a refund on sales taxes it had remitted during certain periods in 2021.

However, the Colorado appeals court disagreed, delivering a ruling that could reshape how states tax digital services nationwide.

Beyond Physical Touch

The Colorado Court of Appeals found that Colorado’s 1935 sales tax statute, which taxes “corporeal personal property,” should be interpreted more broadly than Netflix desired. Drawing on legal dictionaries from the 1930s, the court determined that “corporeal” encompasses anything perceptible to any of the bodily senses, not just touch.

“The images and sounds that a Netflix subscription permits customers to view and hear physically exist because subscribers can perceive them with their eyes and ears,” the court wrote, emphasizing that streaming content isn’t a mere abstraction and holding that a “Netflix subscription must therefore be corporeal.”

Practical Implications

The Netflix decision reflects the ongoing challenge states face in applying pre-digital tax laws to modern technology. The court noted that “substantial amounts of goods previously existing only in a form susceptible to touch are now routinely sold in digital form—photographs, music, television shows, movies, newspapers, magazines, and educational content.”

Rather than create a tax loophole for digital goods, the Colorado Court of Appeals chose to adapt decades-old legislation to contemporary commerce, ensuring that streaming services face the same tax burden as traditional retailers.

The Netflix ruling potentially affects all digital subscription services operating in Colorado and may influence similar cases nationwide as states seek to capture revenue from the growing digital economy.

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