Colorado Court of Appeals Finds Netflix Subscriptions Subject to Sales Tax

On July 3, 2025, a division of the Colorado Court of Appeals held that video subscriptions sold by Netflix, Inc. (“Netflix”) were tangible personal property taxable under the state’s sales tax statute. The decision reversed the district court’s grant of summary judgment, granting a tax refund to Netflix. The case is Netflix, Inc. v. Department of Revenue of the State of Colorado, No. 24CA1019 (Colo. Ct. App., July 3, 2025).

Background Law and Regulations 

Colorado’s sales tax applies to retail sales of tangible personal property, which is defined as “corporeal” personal property per C.R.S. § 39-26-102. The term includes all goods, wares, merchandise, products, and commodities as well as all tangible or corporeal things and substances that are dealt in and capable of being possessed and exchanged. Intangible items such as stocks, bonds, mortgages, and hunting and fishing licenses are not considered tangible personal property. This definition has been used to tax digital goods such as e-books, PDF files, digital newspapers, and digital videos.

A 2021 regulation promulgated by the Department of Revenue (DOR) specified that digital video subscriptions were also subject to sales tax. In July 2021, the Colorado General Assembly amended the sales tax statute to explicitly state that tangible personal property included digital goods. Internet streaming services were included.

Netflix’s Position 

Netflix sells a streaming subscription offering digital videos and games. After the DOR rule was promulgated and the sales tax statute amended, Netflix remitted sales tax and requested a refund of taxes paid. The request was denied, and Netflix appealed to the district court. Netflix argued that the DOR rule conflicted with the previous version of the statute and that the rule and amended statute violated the Colorado Taxpayer’s Bill of Rights by implementing a new tax without voter approval.

The district court sided with Netflix, holding that the streaming service was not tangible personal property because it was not capable of being touched.

Court of Appeals Decision and Reasoning 

The court of appeals reversed the district court’s decision, agreeing with the DOR that corporeal property included things that could be perceived by any of the senses—not exclusive to the sense of touch. This interpretation mirrored that of the Arizona Supreme Court in the 1943 case State v. Jones, 137 P.2d 970 (Ariz. 1943), which held that songs played from a coin-operated jukebox were tangible personal property subject to tax.

The court also pointed to the distinction between tangible and intangible items such as stocks, bonds, and licenses, finding a streaming video subscription that could be perceived by the senses of sight and hearing was more like tangible property than intangible property. Finally, the court pointed to the “absurdity” of finding the subscriptions nontaxable. The Legislature “obviously” intended to tax photographs, music, television shows, movies, newspapers, and magazines. Technological advancements altering the specific form of delivery should not change the taxable nature of those items.

The court of appeals decision, in finding that Netflix’s subscriptions were taxable under the 1935 version of the statute, did not comment on the Taxpayer Bill of Rights claim that Netflix was being subjected to a new tax imposed without voter approval.

Conclusion 

This case represents the growing trend toward state taxation of digital products and services, but the Colorado decision has some gaps. For example, the decision relied on the language of the 1935 statute, but did not address the fact that a statutory definition added in 2012 indicated that computer software was not considered to be delivered in a tangible medium if delivered through an application service provider or electronically. Those are the same methods Netflix uses to deliver its services. The DOR had previously explained in General Information Letter GIL-13-020 (August 20, 2013) that this distinction regarding delivery methods applied only to software, not digital goods. However, it still indicates potential ambiguity as to the meaning of “tangible” that could have been resolved in the taxpayer’s favor. This is a case to watch in the event Netflix appeals the decision to the Colorado Supreme Court.

Ryan experts have extensive experience with the taxability of digital goods and software nationwide. If you have questions, reach out to one of the experts below today.

TECHNICAL INFORMATION CONTACTS:

Landon Julius
Principal
Ryan
913.338.2005
landon.julius@ryan.com

Kate Stodola
Director
Ryan
720.524.0022
kate.stodola@ryan.com

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