How Taxing Will OTT Be?

It's not just cable providers that are being affected by the cord-cutting movement. As new advances in over-the-top programming push more consumers toward à la carte streaming subscriptions, a rapidly escalating number of companies face the possibility of contending with potentially serious communications taxation implications.

As bundles are broken down and rebuilt to meet consumer demands -- as is currently being done by Discovery, Disney, Viacom, AMC and others as they move further into streaming services -- it's important to consider tax compliance when making key business decisions. With so much of the conversation centering on the impacts on the pay-TV industry, it can be tempting to view streaming services and cable services through two very different lenses. However, from the perspective of communications taxation and regulations, they may be viewed as very similar services.

Tax authorities at all levels of government are working to determine how these content offerings should be categorized, how they differ from traditional communications services, and how to apply taxes and regulations accordingly. As the lines separating the cable and wireless industries continue to blur, due both to company mergers and expanding product offerings, taxing jurisdictions and regulatory agencies are paying attention. And with such a steady climb in competition -- recent surveys indicate an increasing number of consumers are willing to pay for multiple streaming subscriptions -- there's little doubt that auditors are closely watching these developments as they unfold.

Suffice it to say that this is an area where the unprepared company could experience significant consequences. There are many instances where video streaming services may be subject to the same taxes as traditional cable services. Plus, any time a product or service is deemed to cross over into the communications realm, it opens the door to a complicated array of hundreds of different types of telecom taxes and thousands of transactional tax filings at the federal, state, county and local levels.

For this reason, as the OTT industry proliferates and expands, it's imperative that businesses are prepared to meet these new demands. Issues can arise when a company moves forward with a new offering under the assumption that certain communications taxes and federal regulations will not apply, which can be easy to do amidst so much innovation and change. However, the web of communications taxation is an intricate one that is constantly shifting and continually evolving.

What will happen when a state determines that video streaming services fit its definition of pay television? Will companies be prepared to meet the new tax obligations as they are assessed? Which states will continue to regard a video that's downloaded instead of streamed as a taxable digital good -- instead of a non-taxable digital service?

The answers to these questions and others like them aren't always clear cut. But to remain competitive, it's critical to understand when streaming services may be held to the same standards as cable services. This is one area where telecom is still working through a great transformation. That means compliance depends on staying ahead of all the latest federal, state and local tax developments and definitions with each new innovation and offering.

— Tony Susak, General Manager, Telecom Communications and Marketing Avalara for Communications

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