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Every few months brings a new class action against Netflix, Hulu, and Disney+ from American cities and towns looking to raise revenue by taxing these streamers. The municipalities are typically looking to collect fees under old video service franchise statutes that predate the streaming era. Netflix, Hulu, and Disney+ don’t believe it’s fair, but they haven’t had the best of luck so far in court. The latest is a 7th Circuit Court of Appeals opinion out on Wednesday that sends the streamers back to Indiana state court to fight the tax battle.
The case was originally filed there by the cities of Fishers, Indianapolis, Evansville, and Valparaiso. The cities sought a declaration that the streaming platforms provide “video service” as defined by The Indiana Video Service Franchises Act of 2006. There are similar cases across the nation including in California, Missouri, Arkansas, Illinois, and on and on.
Subsequently, Netflix, Disney, DirecTV and Dish removed this Indiana case to federal court. A district court ordered it sent back. The streamers appealed. That’s what has led to today’s appellate decision where the comity abstention doctrine reigns. Meaning, since taxation deemed one of the core activities of local government, they should get a crack at exercising jurisdiction. The 7th Circuit justices say the streamers can raise in local court their big arguments, which include their contention that federal law preempts the franchise fees, that the federal Internet Tax Freedom Act prohibits discriminatory treatment of e-commerce, and that the Indiana Video Service Franchises Act violates the First Amendment to the United States Constitution.
See the entire decision below, and don’t be surprised if this franchise fee issue is the one that causes Netflix to file its first petition for writ of certiorari at the Supreme Court. Even the 7th Circuit senses that.
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