The popularity of streaming services has significantly changed how Texans consume entertainment. Millions of Texans use Netflix, Hulu and Disney+ to stream their favorite TV shows or movies. These companies, however, currently face accusations from more than two dozen Texas cities that they have neglected to pay municipal taxes totaling several million dollars.
Millions of dollars lost for municipalities
In early August, 25 municipalities throughout Texas filed a lawsuit in Dallas County against Disney DTC LLC, Hulu, LLC, and Netflix Inc. The plaintiffs include some of Texas’s largest cities, including Houston, Dallas, Austin, Fort Worth and Arlington. The claim alleges that the streaming companies named in the lawsuit have failed to pay municipal franchise fees since 2007. If the lawsuit is correct, the companies’ unpaid taxes could total dozens of millions of dollars. The City of Austin, for instance, conservatively estimates that the municipality lost at least $9 million in fees in the past 15 years.
Understanding Texas franchise fees
Municipal budgets rely heavily on corporate taxes. Under the Texas Utility Regulatory Act (PURA), video service providers owe municipalities a franchise fee of 5% if it uses the municipality’s public wireline facilities to provide viewers with programming. Revenue from the tax goes to fund critical city services such as police, firefighters and road construction.
The significance of the lawsuit
Texas law tends to favor leniency regarding corporate taxes. For 25 cities to band together and insist on corporate tax liability is a particularly significant statement. It indicates the widespread frustration of the numerous municipalities that rely on franchise fees for revenue. Municipalities’ general revenue funds have felt the crunch of tax avoidance, and it seems that their city attorneys and other staff members are serious about holding streaming companies accountable.
