Netflix, Inc. v. Department of Revenue.
2025 COA 64. No. 24CA1019. Sales Tax—Tangible Personal Property—Digital Goods—Internet Subscription Services.
July 3, 2025
Netflix, Inc. offers subscriptions to Colorado consumers for unlimited access to its online library of movies, television shows, and games. Subscribers agree to pay a flat monthly fee for this access. In 2013, Netflix requested a private letter ruling from the Colorado Department of Revenue (DOR) that its sales of streaming subscriptions are not taxable as sales of tangible personal property. DOR did not provide the requested ruling. Rather, after first determining that Netflix owed millions in uncollected sales tax, DOR abated the amount assessed to address the issue initially through rulemaking. The DOR rule was promulgated, and Netflix remitted the sales tax collected on the streaming subscriptions. Netflix then sought a refund of these remitted amounts, which DOR denied. Netflix appealed the denial in the district court, arguing that its subscriptions are not taxable because the sale of a subscription is not a sale of tangible personal property. Netflix also argued that DOR’s rule conflicts with the sales tax statute and both the rule and statute violate the Taxpayer’s Bill of Rights (TABOR). DOR moved for a determination of questions of law, and Netflix moved for summary judgment. The district court denied DOR’s motion and granted Netflix’s motion, concluding that the sale of a Netflix subscription is not the sale of tangible personal property, so it is not taxable under Colorado’s retail sales tax law. The court declined to address the remaining issues concerning DOR’s rule and the sales tax statute.
On appeal, DOR argued that the definition of tangible personal property broadly includes things that are “beyond the sense of touch.” The Colorado retail sales tax statute imposes a tax on all sales and purchases of tangible personal property at retail, which includes digital goods, defined at CRS § 39-26-102(15)(b.5)(II) to mean “any item of tangible personal property that is delivered or stored by digital means, including but not limited to video, music, or electronic books.” The court of appeals concluded that Netflix sells tangible personal property at retail when it sells subscriptions, so those sales are taxable under the sales tax statute. Because of this conclusion, the court did not reach the remaining issues concerning the propriety of the DOR rule and the sales tax statute.
The judgment was reversed and the case was remanded for further proceedings.