New Orleans Loses Bid to Tax Music Streaming Service

The BR State + Local Tax Spotlight

By Mitchell A. Newmark

The New Orleans Collector of Revenue (“Collector”) failed in its attempts to subject music streaming services to the City’s sales tax. In Apple, Inc. v. Collector of Revenue of the City of New Orleans et. al., Docket No. L01283 (May 2, 2024), the Louisiana Board of Tax Appeals, Local Tax Division, analyzed the Company’s summary judgment motion and noted (1) that the City did not file an opposition to the motion and (2) that the City would “not consent to the granting of the motion.” We often see collectors raise no specific objection to an assessment challenge, except proffering their “we say so” positions, essentially arguing that if a court will give you a win, so be it. That is not fairness in tax administration, and we hope the Louisiana Governor is listening.

The City issued assessments to the Company for the periods January 1, 2016 through October 31, 2018, asserting sales tax, interest, and penalties with respect to the Company’s music streaming subscriptions. The Company challenged, asserting the City’s assessments were an illegal, discriminatory tax under the Internet Tax Freedom Act (“ITFA”) codified in the notes to 47 U.S.C. § 151. The Board found three undisputed material facts: (1) the Company’s service uses the Internet to stream audio content, such as music, to devices connected to the Internet; (2) satellite radio service allows the streaming of audio content, such as music, using satellites to devices capable of receiving satellite signals; and (3) the audio content streamed using the Internet to the Company’s subscribers is similar to the audio content streamed by satellite radio providers using satellite signals.

The Board explained that the ITFA prohibits a state or political subdivision, such as New Orleans and Orleans Parish, from imposing discriminatory taxes on electronic commerce. The ITFA defines the term “discriminatory tax” as a tax imposed on electronic commerce but not generally imposed by the taxing authority on transactions involving similar goods or services accomplished through other means. ITFA § 1105(2). The ITFA defines “electronic commerce” as a transaction conducted over the Internet. ITFA § 1105(3).

The Board found that it is undisputed that the Company’s streaming service is provided over the Internet. The Board further found that the City was pre-empted from subjecting satellite broadcast services to sales tax by the Federal Telecommunications Act (“FTA”) (reproduced at 47 U.S.C. § 152, note). FTA § 602(a). The Board reasoned that satellite music streaming services are not subject to the City’s sales tax and the City is attempting to subject to sales tax the same service by the Company because it is provided via the Internet. As such, the Board held that the City is attempting to impose a tax on an Internet service that it cannot impose on a similar satellite service, such an attempt is a discriminatory tax under the ITFA, and the sales tax on Internet music streaming is prohibited.

The takeaway is that often litigation proceeds, though the company is correct in its position, because a tax authority does not want to be seen as allowing the position or it does not like the outcome. “We Say So” taxation has no place in the fair administration of tax.

This update is one in a series of updates written for the May 2024 edition of The BR State + Local Tax Spotlight.

© 2024 Blank Rome LLP. All rights reserved. Please contact Blank Rome for permission to reprint. Notice: The purpose of this update is to identify select developments that may be of interest to readers. The information contained herein is abridged and summarized from various sources, the accuracy and completeness of which cannot be assured. This update should not be construed as legal advice or opinion, and is not a substitute for the advice of counsel.