/>iThe Colorado Court of Appeals found that Netflix’s subscription sales are sales of tangible personal property subject to Colorado sales tax. The Court reversed and remanded the district court’s decision, which held that Netflix’s subscriptions are a “streaming service” that are “not capable of being touched” and therefore are not tangible personal property subject to Colorado sales tax. Netflix, Inc. v. Colo. Dep’t of Revenue, 2025COA64 (Colo. App. July 3, 2025).
The Facts: Netflix offers consumers, including consumers located in Colorado, unlimited access to its online library of movies, shows, and games in exchange for a monthly flat fee. Netflix’s library constantly changes—regularly adding new content and removing existing content. When a subscriber selects Netflix content to view, the content’s data is transmitted—via the internet—from Netflix’s servers to the subscriber’s device, at which time it is converted to images and sounds.
Netflix previously remitted Colorado sales tax on its streaming subscriptions. However, after 2021 sales tax regulatory and statutory changes (discussed below), Netflix requested a refund, asserting that its subscriptions are not taxable tangible personal property. The Colorado Department of Revenue (the “Department”) denied the refund request. The district court disagreed with the Department’s denial.
The Law: Colorado’s sales tax law, originally enacted in 1935, imposes sales tax on retail sales of tangible personal property. Except for certain exemptions that are not relevant here, “tangible personal property” is defined as “corporeal personal property . . . [that] embraces all goods, wares, merchandise, products and commodities, and all tangible or corporeal things and substances that are dealt in and capable of being possessed and exchanged.”
In 2021, the Department promulgated regulations seeking to provide clarification on the definition of “tangible personal property” as it relates to the evolution of technology. The Department’s rule clarifies that the delivery method of a sale of tangible personal property does not impact the taxability of such sale and provides that delivery methods under current technology include “internet streaming.”
Later in 2021, the sales tax statute defining tangible personal property was amended to conform to the Department’s rule and to clarify that tangible personal property included “digital goods,” which are items of tangible personal property that are “delivered or stored by digital means, including but not limited to video, music, or electronic books.”
The Decision: The Court analyzed the issue before it under the original definition of tangible personal property in Colorado law. Thus, the focus of the Court’s analysis was on the meaning of “corporeal” property. Netflix argued that in order for property to be “tangible personal property,” the property must be capable of being both seen and touched. The Court rejected this argument, finding that “corporeal” property encompasses property that can be perceived “by any of the senses.”
In support of its holding, the Court looked to the 1933 edition of Black’s Law Dictionary, which defined corporeal property, in part, as that which “affects the senses, and may be seen and handled.” Citing to Black’s Law Dictionary’s commentary—which stated that “[i]n modern law, all things which may be perceived by any of the bodily senses are termed corporeal”—the Court combated Netflix’s argument that “seen and handled” is a conjunctive test that requires a physicality component. The Court ultimately concluded that because Netflix subscribers are able to perceive Netflix content with their eyes and ears, Netflix subscriptions are perceived by any of the senses and are tangible personal property subject to Colorado sales tax.
Throughout its analysis, the Court focused on the proposition that a change in delivery method should not affect the taxability of sales of tangible personal property and observed that “goods previously existing only in a form susceptible to touch are now routinely and increasingly sold in digital form. . . .” Under the Court’s reasoning, for sales tax purposes, there is no difference between selling a physical DVD and selling a subscription for programming content, which may allow a subscriber to access the same content as it would have had access to had it bought a DVD. However, this comparison misses critical differences between purchasing a tangible item such as a DVD versus subscribing to Netflix. A DVD provides its purchaser with indefinite viewing rights to the content on the DVD, whereas Netflix does not guarantee a subscriber any rights to any specific content. A Netflix subscriber cannot pick and choose what content it has access to and does not have indefinite access to any content. Thus, while a DVD and Netflix may both provide content that is perceivable by the same senses, there are fundamental differences in the underlying mediums that the Court seemed to overlook in its analysis.
