United States

Texas: Streaming Subscriptions Subject to Tax as Amusements and Cable Television

Mar 19, 2018
From KPMG TaxWatch

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The Texas Comptroller recently ruled that sales tax applied to the sale of subscriptions related to an internet-based platform for view real-time and on-demand streaming videos. The videos depicted numerous activities including playing video games, music, painting, cooking, and competing in live eSports competitions. Users were able to access and view streamed and on-demand content, post their own on-demand videos, and access a chat tool free of change.  However, the taxpayer offered paid subscriptions (either to a specific channel or platform-wide) that provided additional benefits such as ad-free streaming, additional chat features, priority access to customer support, and increased storage time for videos uploaded by the user. The Comptroller first ruled that the subscription fees were subject to tax as cable television services. A Comptroller rule defines cable services to include online streaming and on-demand videos. While the subscription did not offer access to any additional streaming and on-demand videos beyond what was available free of charge, the Comptroller concluded that the because the taxpayer provided services meeting the definition of cable television services when it charged a lump sum subscription fee the entire charge was taxable. The Comptroller also ruled that the subscription fees were taxable as amusement services. The Comptroller had previously ruled that amusement services included access to video games and associated content such as chat rooms, discussion boards and other “game communities.” In the ruling at hand, the Comptroller acknowledged that the subscription at issue did not provide access to video games, but found that providing access to game communities with chat functions and similar areas where game players could comment, interact, find information, or communicate generally was a taxable amusement service. Please contact David Davis at 214-840- 6791 with questions on this ruling.

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The following information is not intended to be "written advice concerning one or more federal tax matters" subject to the requirements of section 10.37(a)(2) of Treasury Department Circular 230.

The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser.