Watch what’s next: Georgia might tax Netflix and downloads

Legislators and internet providers see it as a giant pool of untapped cash that could be used to subsidize construction of internet lines in economically depressed rural parts of the state.

Those who are already connected would pay the price: They’d bear the cost of the 4 percent tax, but its benefits would go toward rural residents who lack high-speed access to online products.

Georgia is the latest state to consider a far-reaching tax on internet services, a virtual gold mine for governments trying to raise money to prop up rural areas that have steadily lost businesses and residents to Atlanta and other cities. Only a handful of other states have imposed this kind of tax so far, but similar proposals have been introduced in legislatures across the country.

Both Gov. Brian Kemp and Lt. Gov. Geoff Duncan have expressed reservations about the idea.

The proposal pits current customers against communication companies such as AT&T, who stand to profit because the digital tax would replace existing, higher taxes on cable TV, phones and broadband equipment.

A rural-urban divide

About 66 percent of Georgians oppose the idea of taxing internet, TV and phone services to raise money for rural internet, according to a statewide poll conducted last month for The Atlanta Journal-Constitution.

“We in the city have been taxed enough,” said Beverly Barnes, an Atlanta retiree who was questioned for the poll. “I look at my cable and cellphone bill, and I see we have enough fees. Most people move to the country because it’s cheaper out there. Let them pay for that.”

But state Rep. Jay Powell, the chairman of the powerful House Rules Committee, said customers have avoided paying sales taxes on digital products, creating inequities between old and new technologies. For example, a book purchased at a store is subject to sales taxes, but a downloaded e-book is tax-free.

He said those who have high-speed access should pay a tax to support Georgians who lack high-speed internet, which has become a necessity for business, education and health care.

“We are all part of the same state, and we help each other,” said Powell, a Republican from Camilla. “If Atlanta benefits, then the rest of Georgia benefits. If the rural section of Georgia benefits, then Atlanta benefits. We’re all in it together.”

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Discomfort over new taxes

Nearly 60 lobbyists for cable, TV and cellphone companies are making an argument that it’s only fair that every service be taxed equally. Currently, various taxes and fees cover cable TV and phones but not satellite TV and internet video.

The resistance comes from legislators who oppose new taxes, consumers who would pay the tax and Dish TV, which doesn't stand to benefit from government funding of rural internet since it already provides satellite-based online access to those areas. Before a similar digital tax proposal failed last year, Dish TV ran TV ads urging viewers to "Stop the Georgia TV tax!"

Legislation for the tax proposal hasn't been introduced yet in Georgia, but a bill is coming from a group of influential rural House lawmakers who have made internet access a priority. They say the state government needs to spread around some of metro Atlanta's economic prosperity. Other lawmakers are uncomfortable with the idea of a tax increase.

For a Netflix customer with a $12.99 monthly plan, a 4 percent tax would cost 52 cents per month, or $6.24 per year.

Rural Georgians such as Twalla Whitlock, who subscribes to satellite internet service, said they need faster, more affordable internet options.

“It’s expensive,” said Whitlock, a Brooks County resident who works in social services and responded to the AJC poll. “If they had more towers out here, it would be cheaper. In a lot of areas, they have limited service.”

The tax, combined with the repeal of existing taxes and fees, would generate $48 million in 2021 and reach $310 million by 2024, according to state estimates. Revenue would be split between state and local governments. The state portion would go into the general treasury, meaning there’s no guarantee it would go to help increase internet access in rural Georgia. The state can’t dedicate funding without changing the state Constitution.

Without state funding, internet companies say it doesn't make financial sense for them to expand into less populated areas, where access is spread among fewer customers. State legislators want to subsidize internet companies' costs to expand into regions that lack broadband service.

Less access, fewer opportunities

About 638,000 households — 16 percent of the state — lack access to internet with speeds of at least 25 megabits per second, according to a University of Georgia study.

Internet speeds in the 25 Mbps range are important to work from home, study online, download files and stream high-definition video, according to the Federal Communications Commission.

State Sen. Steve Gooch said he wants to find money for rural internet expansion, but he's not convinced a digital services tax is the way to do it. He said funding could come from an existing fund for landline telephone expansion, and he opposes taxing satellite dishes because they don't use public rights of way.

“We should exhaust all options and review our existing tax framework for internet, telephone, broadband and satellite services before making any decisions,” said Gooch, a Republican from Dahlonega.

State Rep. Viola Davis, a DeKalb County taxpayer advocate before she was elected last year, said she's skeptical of the proposal.

“I get real uncomfortable when they want to tax an area and then redistribute that money to another area,” said Davis, a Democrat from Stone Mountain. “If you do the tax, the tax will be on primarily the urban homeowners and users of internet.”

Similar technologies should be taxed evenly, but it's often unpopular when elected officials try to put a tax on services such as Netflix that have so far escaped the government's reach, said John Buhl, a spokesman for the Tax Foundation, a Washington-based think tank. States including Hawaii, Pennsylvania and Washington tax streaming services.

“People think of Netflix, and they like Netflix, and they say, ‘Why are you trying to tax my Netflix?’ ” Buhl said. “Things that were goods in the past are now services in the digital era, and states need to deal with that. Otherwise, their tax base will get smaller quickly.”

Georgia already imposed sales taxes on products sold online, which went into effect Jan. 1. But electronic goods remain untaxed.

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Cable vs. satellite

Cable companies support broadening the tax base among all TV and internet customers — not just those that have cable and are already paying government franchise fees — Georgia Cable Association lobbyist Stephen Loftin said.

“Clearly, when you’ve got some services that pay a tax and others don’t, there’s an equity situation that needs to be addressed, particularly when the services are indistinguishable to the consumer,” Loftin said. “The only difference is the technology used to deliver it.”

The Georgia Cable Association’s members include Charter Communications, Comcast and Cox Communications, the cable and broadband internet subsidiary of Cox Enterprises, which also owns the AJC. Cox provides cable, internet and phone services in Middle Georgia, primarily in the Macon and Warner Robins area.

AT&T is the largest force of the telecommunications industry at the Georgia Capitol, with the biggest service area and the most lobbyists — 23 — according to state ethics commission records.

It wants any tax on internet services to also eliminate sales taxes on broadband equipment, saving money for telecom companies. A House council of rural legislators included the elimination of broadband equipment taxes in its recommendations.

“The state’s first step to spurring broadband deployment should be eliminating government-imposed economic and procedural hurdles that stifle private capital investment,” AT&T spokeswoman Ann Elsas said. “Once that has occurred, the state can assess the need for any additional steps like supplementing federal efforts to help enhance broadband deployment in hard-to-reach, high-cost areas.”

Netflix didn’t respond to requests for comment. Comcast referred questions to the Georgia Cable Association.

Dish, the satellite TV and internet provider, characterized the tax as a handout for "big cable." Dish spokeswoman Karen Modlin said the company is the only statewide provider of video and broadband, without having to use local infrastructure.

“We hope that the Legislature will recognize that innovation can be achieved without saddling satellite customers with new and unwarranted taxes,” Modlin said.

Charlie Hayslett, the former owner of an Atlanta-based public relations firm who is writing a book about the divide between metro and rural parts of Georgia, said the tax plan for rural broadband could be an expensive waste of money.

While internet service is important for rural Georgia, he questions whether a government subsidy would solve the area’s connectivity problems.

“I’m all for helping rural Georgia,” Hayslett said, “but I’m also tired of being asked to sit in gridlocked traffic while the General Assembly uses my tax money to buy a pig in a poke for South Georgia.”

WHY IT MATTERS

More than 600,000 rural Georgia households lack access to high-speed internet, limiting opportunities for business growth, education and health care. State legislators are considering a tax on streaming video, music downloads and e-books to raise money to subsidize internet construction in unconnected parts of the state.

HOW IT WOULD WORK

A proposed 4 percent tax on all digital, phone and TV services would replace a variety of existing sales taxes and franchise fees currently charged on cable TV revenues and phone subscriptions. The communication services tax would cover streaming video and other internet downloads that currently aren’t taxable.

New taxes:

Eliminated taxes:

Source: Georgia House of Representatives Rural Development Council

Stay on top of what’s happening in Georgia government and politics at ajc.com/news/georgia-government/.