Maine may tax Netflix and other streaming subscriptions

AUGUSTA — Gov. Janet Mills’ budget proposal includes a new sales tax on Netflix, Spotify and other streaming services.

The move would bring in an estimated $10 million a year in additional revenue, but would be offset by an expanded sales tax exemption for nonprofits.

Administration officials say the proposal, which comes as the state is experiencing a series of revenue surpluses, is intended to make the tax code more consistent and equitable.

Some Republicans criticized the proposal on Tuesday, accusing the governor of helping corporations at the expense of Maine consumers because the same budget proposal would reduce the current taxes on telecommunication and cable service providers, including Spectrum, from 6% to 5.5%.

“Guess who gets hit? My constituents,” Sen. James Libby, R-Standish, said at a news conference Tuesday. “My constituents are all getting hit with a download fee (tax) on anything they do that is subscription-based.”

Libby serves on the Taxation Committee, which voted 7-1 in favor of the proposal last week with some support from Republican members.

The committee’s lead Republican, Rep. Micky Carmicheal, R-Greenbush and Rep. Tomas Lavigne, R-Berwick, voted in favor. Rep. Tracy Quint, R-Hodgdon, opposed the bill, while Libby and two other Republicans, Rep. Laurel Libby, of Auburn, and Rep. Shelley Rudnicki, of Fairfield, were absent.

Sharon Huntley, a spokesperson for the Department of Administrative and Financial Services, said the proposal aims to “streamline, simplify and modernize” the state sales tax.

Under current law, the service providers pay a 6% tax, while customers pay the state’s 5.5% sales tax on movies, songs or albums that they purchase, either as a physical copy or download. Streaming fees are exempt.

Under the proposal, both service providers and customers would pay a 5.5% tax and the consumer sales tax would be expanded to include streaming subscription fees. A $20 a month subscription fee for a streaming service would have $1.10 in tax added to it.

Huntley said Mills previously proposed the same change in 2020, three years after Gov. Paul LePage suggested it. It was rejected both times.

“The proposal addresses the uneven mix of taxation of digital goods and services under current law to, instead, apply the sales tax more simply and equitably across the different forms of platform delivery, purchase, and use such as by entertainment streaming and subscription services,” Huntley said.

25 STATES HAVE SIMILAR TAX

Huntley said 25 other states apply the sales tax or an equivalent tax to digital services.

Mills said during her reelection campaign in 2022 that she would not support any new taxes. Last year, she supported creating a statewide family and medical leave program that would be funded through an additional tax on workers and employers.

When asked whether the sales tax proposal also went back on that pledge, spokesman Scott Ogden stressed that “it’s not a new proposal.”

Huntley also pointed out that the combined changes to the sales tax code would be revenue neutral during the two-year budget cycle.

The proposal comes as Maine is expecting a $370 million revenue surplus during the current two-year budget period.

Tax revenues have exceeded expectations in Maine repeatedly since the peak of the COVID pandemic, which brought an influx of federal funding to support workers, businesses, and state and local governments that buoyed state revenues. The surpluses also have been propelled by consumer spending driving up sales tax revenues and strong employment increasing income tax collections.

The Mills administration is warning that revenues are now expected to level off and that the Legislature should avoid investing the surplus revenues in ongoing programs or services.