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Netflix and Hulu are on a bit of a roll on the local taxation front. This week, a Los Angeles judge gave victory to the streamers against Lancaster, California, which tried to assess franchise fees on them.
The California city is one of many townships around the nation currently in court against streamers. Towns and cities once collected a portion of revenue from cable companies needing to dig up the ground and lay their lines. The question is whether streamers must pay the same kind of fees — typically 5 percent of gross income derived from providing local video programming.
Under the Digital Infrastructure and Video Competition Act, enacted by California in 2006, only “video service providers” that provide “video programming” must pay up.
L.A. Superior Court Judge Yvette Palazuelos refers to lawmaker intent, federal regulation and other decisions around the country to inform her decision. She comes to the conclusion that Netflix and Hulu don’t fit the DIVCA.
“Because Netflix’s and Hulu’s services are ‘on demand,’ they are not live, linear, channelized, schedulized, or programmed,” she writes. “As such, they are not ‘comparable to programming provided by … a television broadcast station.”
The judge also rules that while DIVCA allows a city like Lancaster to go to court over underpayment of franchise fees, there’s nothing in that statute that authorizes a private right of action to force an entity like Hulu to be franchised in the first place.
The judge is allowing Lancaster, California, an opportunity to amend the complaint if it so chooses, though given the breadth of the ruling (see here), it seems more likely that the next big phase will be at the appellate level.
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