Kansas revenue officials on Wednesday were forced to defend questions about whether they were taxing internet streaming services although it’s not permitted by state law.
As the Senate tax committee considered the agency’s $107 million budget, Republican state Rep. J.R. Claeys asked the agency about a $23 million tax bill sent to Netflix.
“You’re breaking the law, and I would like to have your commitment right now that you will stop today,” the Salina Republican told Revenue Secretary Mark Burghart.
Burghart said he couldn’t discuss details about individual tax cases because they’re confidential information.
Burghart said the state doesn’t tax streaming services “per se.”
He said there is a statute that allows subscription television services to be taxed.
“The legal issue is what does Netflix sell,” Burghart told the committee.
Claeys immediately responded, saying he thought any tax on Netflix was out of bounds.
“Mr. Secretary, this is an egregious abuse of power,” Claeys said.
“You can come to that conclusion on your own, or you can have us address it through the budget process.
“But I can commit to you today, you will not recognize your agency when I’m done with it if you continue on this course,” Claeys said.
The agency declined comment after Wednesday’s meeting.
Republican state Sen. Caryn Tyson, chair of the tax committee, asked the secretary to appear before the committee again on Thursday to discuss the matter.
“I appreciate the senator bringing this up,” Tyson said. “I know you can’t talk about an individual, but we do need this addressed.
“This must be addressed in front of this committee.”
Netflix declined comment through a company representative.
Gov. Laura Kelly proposed taxing digital goods two years ago that would have included streaming services as well as music downloads and online periodical subscriptions.
House Majority Leader Dan Hawkins campaigned against it, calling it the “Baby Yoda tax,” a reference to a creature from the “The Mandalorian” series on Disney+.
“Ready to pay more to stream your favorite shows?” Hawkins tweeted. “It may not be long before your streaming budget takes a hit if Gov. Kelly gets her way by adding a new tax on all streaming services.
At the time, the administration said a tax on digital goods was an attempt to level the playing field between internet sellers that don’t have to collect taxes and brick-and-mortar retailers that do collect taxes.
Supporters of a tax on digital products said it would protect taxes that could slip away as more and more consumer products evolve into a digital format.
Claeys said the tax bill sent to Netflix isn’t the first time the agency seemed to get ahead of the Legislature.
He pointed to the agency’s efforts three years ago to require out-of-state retailers to collect sales taxes on internet transactions – a move that Republican Attorney General Derek Schmidt questioned at the time. Schmidt is now running for governor.
The Revenue Department cited a 2017 U.S. Supreme Court decision that allowed for internet sales tax collections when it issued a directive asking out-of-state retailers to collect internet sales taxes.
