Colorado Appellate Court Reverses District Court Ruling: Online Streaming Subscriptions Constitute Taxable TPP
In Netflix, Inc. v. Department of Revenue of the State of Colorado, No. 24CA1019, decided on July 3, 2025, the Colorado Court of Appeals overturned a District Court ruling. It decisively held that online streaming subscriptions, such as Netflix’s, qualify as tangible personal property (TPP) and are therefore subject to Colorado’s retail sales tax.
The core question: Does a subscription to streaming video content meet Colorado’s nearly century-old definition of TPP?
Statutory Framework & Historical Context
Colorado’s Emergency Retail Sales Tax Act of 1935 imposed sales tax on “tangible personal property,” defined in the statute as “corporeal personal property”, a term later interpreted broadly.
Since then, the Department of Revenue (DOR) has considered various digital goods, such as e-books, PDFs, digital videos, and photographs, as taxable. In 2021, it formalized this by issuing a rule clarifying that the delivery method doesn’t affect taxability, expressly including internet streaming as an example. Later that year, the legislature amended the sales tax law to define “digital goods” as items delivered or stored by digital means, including video, music, or electronic books.
However, both parties in this case focused on the original definition of TPP, primarily the meaning of “corporeal.”
District Court vs. Court of Appeals
The district court, granting summary judgment to Netflix, held that streaming services are not considered TPP because they can’t be touched, arguing that TPP must be “seen and handled”.
The Colorado Court of Appeals disagreed. Interpreting “corporeal” broadly, the court relied on 1933 Black’s Law Dictionary, which defines corporeal property to include things “perceptible by any of the bodily senses,” not solely touch. Because Netflix’s content is seen and heard, even if impermanent, the court found it sufficiently corporeal to qualify as TPP.
Judge Matthew Grove, writing for the unanimous panel (joined by Judges Welling and Johnson), rejected Netflix’s physicality-only argument and warned that excluding digital content solely due to its delivery method leads to “absurd results”. The court emphasized that modern commerce routinely sells content, such as photos, videos, and music, in digital form, and the legislature intended sales tax to apply to these forms.
Administrative and Legal Precedent
The recent appellate ruling:
- Provides a judicial endorsement of the Department of Revenue’s digital tax rules, lending support to DOR’s broader enforcement initiatives.
- Offers a precedent that may influence other jurisdictions, especially those with similarly dated statutory definitions of tangible personal property.
- Signals to courts and policymakers that even older statutes can flex to accommodate modern digital commerce, provided that delivery does not obscure the nature of what is being sold.
Potential downstream issues, such as Netflix’s “Taxpayer Bill of Rights” (TABOR)-based argument (claiming new taxes were imposed without voter approval) or challenges regarding statutory conflicts, were not addressed in the appellate opinion and remain unresolved.
The case has now been remanded to the district court for further proceedings consistent with the appellate ruling.
Implications for Tax Policy and Digital Economy
The Appellate Court ruling underscores a pivotal shift in applying analog-era tax laws to the digital economy. While the legal focus was on defining “tangible personal property,” the broader impact touches several areas of sales and use tax administration and compliance.
- Expansion of the Sales Tax Base
By classifying streaming subscriptions as tangible personal property, the Colorado Court of Appeals effectively expands the scope of what is subject to sales tax under existing law. This interpretation:
- Validates the Colorado Department of Revenue’s inclusion of digital goods and services (e.g., e-books, music, streaming video) as taxable, regardless of delivery method.
- May encourage Colorado to audit and assess other subscription-based or digital service providers, especially those previously operating under the assumption that their services were nontaxable.
- Sales Tax Collection Responsibilities for Vendors
The decision places heightened compliance pressure on:
- Streaming platforms like Netflix, Hulu, Spotify, and others that charge recurring subscription fees.
- Marketplaces and aggregators that facilitate digital content distribution.
- Out-of-state sellers, particularly after the 2018 U.S. Supreme Court decision in South Dakota v. Wayfair, which eliminated the physical presence requirement for sales tax nexus.
Vendors with economic nexus in Colorado will need to:
- Reevaluate their product taxability matrices to ensure proper classification and application of tax.
- Update point-of-sale and billing systems to collect sales tax on digital content sales.
- Possibly remit use tax on past transactions if they were not properly taxed and a retroactive assessment is considered.
- Use Tax Considerations for Consumers and Businesses
Where vendors fail to collect sales tax on streaming subscriptions or similar digital services, Colorado consumers and businesses may have a use tax liability. This can occur when:
- The subscription is purchased directly from an out-of-state provider.
- Sales tax wasn’t charged due to a mistaken taxability classification.
- Tax was calculated at a rate lower than required.
With this decision in place, auditors may take a stricter view of digital subscription purchases and push for greater enforcement of use tax compliance.
Planning Considerations for Tax Departments
In-house tax departments and legal teams should:
- Reexamine taxability reviews for digital goods and services.
- Review exposure for prior tax periods, especially for clients who’ve historically treated streaming and other intangible media as exempt.
- Consider implications for bundled offerings, where streaming access is part of a package including physical goods, hardware, or licensing rights.
- Monitor further proceedings, especially Netflix’s unresolved TABOR argument, which could challenge the enforceability of new interpretations without voter approval.
Opening the Door for Further Sales and Use Tax Changes
As commerce continues its rapid migration to digital platforms, this case sends a clear message: the nature of a transaction matters more than its mode of delivery. The Colorado Court of Appeals has signaled that tangible personal property does not need to be physical; if consumers can access, see, hear, or otherwise perceive digital goods, those goods may fall squarely within the state’s sales tax base.
Whether content is delivered via disc, download, or streaming over a fiber optic connection, the ruling confirms that substance overrides form. As such, Colorado’s interpretation opens the door for broader taxation of digital content, including:
- Streaming video and music services
- Cloud-based gaming subscriptions
- E-books and digital publications
- Software-as-a-Service (SaaS) platforms, particularly those offering user-facing interfaces
The takeaway is clear: as states modernize their tax laws to reflect the digital economy, gray areas are being transformed into enforceable rules. Staying compliant requires proactive planning, thoughtful structuring, and ongoing monitoring of regulatory changes to ensure ongoing compliance.
Scope Clarification
This ruling interprets Colorado state sales and use tax statutes and Department of Revenue rules only. It does not bind or interpret Colorado’s home-rule municipalities or other local jurisdictions, which administer separate tax codes and enforcement. As a result, local taxability, rates, and obligations may differ, requiring a separate review of each locality’s ordinances and guidance.
Stay Ahead of the Curve… and the Auditor
Colorado’s ruling marks a shift in how states may approach taxing the digital marketplace, and the landscape is rapidly evolving. If your business sells digital goods or services, now is the time to ensure you’re not caught off guard.
Contact Thompson Tax today for all of your sales and use tax needs. We are Your Trusted Tax Advisors.