A Colorado State Appeals Court has ruled that Netflix streaming services are subject to sales tax and are considered tangible personal property. This ruling reverses a Colorado District Court ruling that Netflix subscriptions are not tangible personal property and thus cannot be taxed under Colorado law.
This case began in 2013, when Netflix requested a private letter ruling to say its streaming services were not taxable, which the DOR declined to provide. However, the Department of Revenue (DOR) determined Netflix would owe millions of dollars in sales tax and agreed to abate the amount due until the rule was formally addressed by the General Assembly. After the 2021 amendment, Netflix remitted sales tax collected for January 2021, March 2021, and July 2021, then sought a refund, which the DOR denied. At this point, Netflix appealed to the District Court, claiming their subscriptions do not meet the definition of tangible personal property and thus are not taxable. Furthermore, they claimed a conflict between the DOR rule and the amended statute, and that both the rule and statute defied the Taxpayer’s Bill of Rights (TABOR) by passing the changes without voter approval. The district court in this case ruled for Netflix, noting that though the service can be seen, it cannot be touched, so it cannot be considered tangible personal property. The ruling did not take a position on additional claims made by Netflix. The DOR then appealed the district court’s ruling to the Appellate Court.
The Appellate Court in this case considered the history of retail sales tax in Colorado and the intent of the original law while determining how laws written in an analog world could and should be applied to digital goods. Colorado’s original sales tax law was the Emergency Retail Sales Tax Act of 1935, and that statute remains largely true to the original iteration. Per the law, a tax is to be imposed on “the purchase price paid or charged upon all sales and purchases of tangible personal property at retail” (Ch. 189, 1935 Colo. Sess. Laws 1000-22 § 39-26-104(1)(a), C.R.S. 2024), which goes on to note that sales made with installment payments or on credit are also included under the law, and clarifies that by “tangible personal property”, the law is referring to “corporeal personal property”( § 39-26-102(15)(a)(I)). In 1952, some exceptions were added to the law, such as stocks, bonds, fishing licenses, and US postage, and language was also added to explain that “tangible personal property” included all other physical things except newspapers, which are also specifically excluded. Obviously, both the original law and the additions were written before Netflix existed. In 2021, the DOR released guidance saying that the delivery method does not impact taxability which specifically gave the example of a purchaser being charged sales tax for subscription fees to a service which allows the purchaser to select and stream titles from a library. Later in 2021, the General Assembly amended the original sales tax stature to include digital goods and to incorporate and highlight the DOR’s rule that delivery method does not affect taxability (§ 39-26-102(15)(b.5)(I), C.R.S. 2024). The 2021 update to the law by the General Assembly did not include the example of subscription fees included in the DOR guidance.
Since the original statute of 1935 only defines “tangible personal property” as “corporeal personal property” without elaboration, both parties in this case made arguments about what the plain meaning of this phrase is. Netflix contended there must be a physical element – tangible personal property must be capable of being both seen and touched. The DOR claimed that the definition of corporeal goes well beyond the sense of touch and that the concept of tangible personal property should be taken far more broadly – it can include things that are perceptible to the senses, have some degree of transferrable presence, and which cannot be considered intangible rights. The Appeals Court noted in the decision they considered if Netflix subscriptions are tangible personal property with favorable inferences toward Netflix, the non-moving party, and that they will give plain and ordinary meaning to the words and phrases of the original statute, leaning on the dictionary when no definitions are included in the statute itself.
After consideration, the appeals court agreed with the DOR’s position, citing the use of the word “corporeal” in the original statute and the meaning of that word in its context while writing the original 1935 sales tax law. The court highlighted that “corporeal” encompasses far more than just things a person can touch by providing a 1933 definition from Black’s Law Dictionary which explicitly says “corporeal property” can include anything that the senses can perceive, differentiating the corporeal items from the incorporeal, which exists only in the imagination. Though Netflix’s claim that the language supports the claim physicality is a requirement, the 1933 Black’s Law definition specifically notes that a physical requirement is outdated by the time the original 1935 statute was passed as the 1933 Black’s Law definition differentiates between Roman law, which did require the ability to touch, and modern law which expands to all things which may be perceived by any of the bodily senses. Since property must be considered corporeal and incorporeal, and it is only the abstract rights and existential thoughts which are incorporeal, even if a person can’t touch his or her Netflix subscription, it is corporeal since he or she can perceive it with the other senses. As a result of this definition, and since Netflix is not on the list of things which were specifically excluded from sales tax liability, the court overturns the district court ruling and remands the case to the original district court for further proceedings.
This case highlights the importance of clear definitions. The appeals court looked first at the statute to define the law, then to a dictionary for a common interpretation at the time when there was a question about what was meant by the original law. Taxpayers need to be certain they are using the same definitions as the Departments of Revenue they deal with to ensure they are correctly collecting and remitting tax. (Opinion by Judge Grove, Judges Welling and Johnson, JJ in concurrence, announced July 3, 2025, Colorado Court of Appeals case 2025COA64, Netflix, Inc. v. Department of Revenue of the State of Colorado, et al, CO District Court Case 23CV13825)
UPDATE: On March 30, 2026, the Colorado Supreme Court said that it will decide whether Netflix’s streaming video services qualify as “tangible personal property” (TPP) subject to state sales tax. The justices agreed to review the state appeals court ruling that sided with the Department of Revenue, which argued that Netflix subscriptions should be taxed.
We will continue to monitor this case for updates.
(Netflix Inc., v. Department of Revenue of the State of Colorado, No. 25SC629, Colorado Supreme Court, March 30, 2026)