United States

California localities expanding utility user taxes to video services


Recently, a long-imposed California county and city tax has received renewed attention as local governments weigh its expansion to contemporary technologies, such as video services. The Utility Users Tax (UUT) is imposed locally in over 150 cities and counties and subjects consumers of utility services, such as electricity, gas, water, sewer, telephone, telegraph, and cable television services, to a tax at the rate of one to 11 percent. The UUT, currently bringing in about $2 billion per year to California local governments, requires voter approval before the tax can be imposed.

Within the last few months, two California cities have extended the UUT to video services. Indio and Benicia have adopted administrative rulings that effectively apply the UUT to video services, or “over-the-top” services – whether sold by recurring subscription, subscription on-demand, or one-time or non-recurring on demand services, through providers such as Netflix, Hulu, or HBO Go. The result of those rulings is that streaming video services, otherwise not subject to tax under the California sales and use tax, become subject to the UUT. This expansion of the UUT brings up several important questions:

  1. Is the expansion in violation of federal law, such as the Internet Tax Freedom Act?
  2. Is the expansion of the UUT to video services through administrative ruling appropriate under the current law or does such an expansion require voter approval like the UUT ordinance itself?
  3. What are the administrative costs of enforcing the tax on one-off purchases and what are the nexus considerations for video services providers?

A number of other California cities are considering adopting similar administrative rulings as Indio and Benicia. Additionally, new local UUTs were on 2016 city and county general election ballots across the state – signifying that we’ll likely be hearing more about the UUT on video services within the next few months.

The expansion of the UUTs are just another effort to expand the tax base – whether through a utility tax or a sales and use tax, to leverage the provision of various digital goods provided through the internet. Pennsylvania recently enacted a sales and use tax on streaming services and South Carolina released a ruling interpreting the sales and use tax to apply to on-demand streaming services, analogizing those services to taxable cable and satellite television services. Video service content providers should continue to keep an eye on the California UUT expansion as more localities take steps to expand the tax.

Brian Kirkell


Brian provides advanced technical analysis of state and local tax issues important to middle market businesses. Reach him at brian.kirkell@rsmus.com.

Areas of focus: Washington National TaxState and Local TaxOnline and Remote Seller Sales Tax