Thursday, December 18, 2025
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Court of Appeal:
City’s Tax on Video Services Doesn’t Breach Federal Prohibition
By a MetNews Staff Writer
The Court of Appeal for this district yesterday upheld the validity of a voter-enacted tax in the City of Santa Barbara on video services, holding that it does not violate a federal statute that bars “discriminatory taxes on electronic commerce.”
That prohibition is contained in the Internet Tax Freedom Act (“ITFA”). Acting Presiding Justice Kenneth Yegan of Div. Six authored the opinion affirming the determination that the 5.75% tax may lawfully be applied to subscription fees that Internet users pay to Hula and two other subsidiaries of the Walt Disney Company for streaming services.
Addressing an issue of first impression, Yegan rejected the contention by the California Taxpayers Association (“CalTax”) in its amicus brief that the tax, being applicable to the providing of a movie electronically but not to DVD rentals, violates the ITFA. The nonprofit tax research and advocacy argued:
“Consider...the consumer who wants to view the movie ‘Jaws’. She has a television screen in her living room with two boxes connected to it; one an internet router and the other a DVD player. She has two choices in how she obtains access to the movie. One way is to go down to the local store and rent a copy of ‘Jaws’ on a DVD. The other way is to subscribe to one of Appellants’ streaming services and stream ‘Jaws’ from the internet.”
Same Result
The brief continues:
“Either way, she gets to watch the same movie. It cannot be argued credibly that the ‘Jaws’ movie the consumer watched while streaming it from the internet is not similar to the ‘Jaws’ movie she watched after putting the DVD in the player. Thus, even though the method of delivering the content here is different (internet compared to DVD), that same content satisfies the similar[ity] requirement.”
Santa Barbara Superior Court Judge Donna D. Geck, in upholding the tax, expressed a contrary view that “[t]he subscription service acquired by such a consumer is qualitatively different in a real and substantial way from the good that is acquired by a consumer in the DVD transaction.”
Yegan’s Opinion
Yegan declared:
“We conclude the trial court has the better reasoned analysis. A DVD is tangible personal property that can store video programs. The ITFA does not preclude cities from taxing the online sale of tangible personal property, such as a DVD, so long as the same tax would be imposed if the property were sold offline. Video streaming delivers a service that is not tangible personal property. Irrespective of the content of the video streaming, the delivery of this service and the sale or rental of a digital storage device are not ‘similar’ within the meaning of the ITFA.
“Moreover, the sale or rental of a DVD from a brick-and-mortar store in Santa Barbara is subject to a 9.25 percent sales or use tax….Imposing an additional 5.75 percent tax under the Ordinance would subject the sale or rental of DVDs to double taxation.”
Rejecting a First Amendment contention by Disney, Yegan said:
“The Ordinance’s taxation of internet streaming is not a content-based regulation of speech.”
Addressing the contention that the measure was not intended to be applied to streaming services, the justice pointed to the impartial analysis contained in the ballot pamphlet which advised:
“The modernized technical definitions in the Measure G ordinance would apply to all types of telecommunication...regardless of the technology used to provide such communications.”
New Methodology
The City of Santa is seeking to collect $612,337 from Disney for the period from Jan, 1, 2018 through Dec. 31, 2020. Disney noted that while voters approved the tax in 2008, no effort was made to apply it to streaming services until 2020, meaning that new methodology was being utilized which, it contended requires a new vote.
It cited Government Code §53750(h)(1)(B) which provides that there is a tax is increase where an agency “[r]evises the methodology by which the tax...is calculated, if that revision results in an increased amount being levied on any person....”
Yegan responded:
“City did not increase the video users’ tax beyond what was approved by the electorate in 2008. The methodology or math behind the tax remained the same. By enforcing the tax against appellants, City did not enlarge the tax base. Appellants were included in the existing tax base because for a fee they provided video services to Santa Barbara homes and businesses.”
He added:
“…City’s delayed enforcement of the tax against appellants did not add a ‘new variable’ to the methodology for calculating the video users’ tax.”
The case is Disney Platform Distribution, Inc. v. City of Santa Barbara, 3734.
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