Mar 14, 2022

Local Kan. governments protest exempting streaming services from fees

Posted Mar 14, 2022 9:00 PM
Erik Sartorious quoted the Weezer song Undone (The Sweater Song) to convey to Kansas senators an exemption for streaming services from franchise fees was too drastic a step to take. (Sherman Smith/Kansas Reflector)
Erik Sartorious quoted the Weezer song Undone (The Sweater Song) to convey to Kansas senators an exemption for streaming services from franchise fees was too drastic a step to take. (Sherman Smith/Kansas Reflector)

By NOAH TABORDA
Kansas Reflector

TOPEKA — Kansas senators debated Monday extending an exemption from a local government-collected franchise fee to streaming giants such as Netflix and Hulu.

Under Kansas law, cable companies are required to pay up to 5% of their revenue to municipal governments because they rely on the public right of way to deliver services to customers. Companies are also required to register with the Kansas Corporation Commission and pay a fee to the state.

Senate Bill 547 would ensure streaming services would not be subject to these requirements. The issue has come to a head in Fort Scott, where the city filed a lawsuit against Netflix and Hulu over these fees.

Erik Sartorius, executive director of the Kansas League of Municipalities, said proponents were seeking to legislate rather than defend themselves in court. Quoting the song “Undone (The Sweater Song)” by the band Weezer, he said the legislation was akin to bringing a Gatling gun to a skeet shoot — it would blow apart long-standing governance.

“The refrain is, ‘If you want to destroy my sweater, hold this thread as I walk away. Watch me unravel. I’ll soon be naked lying on the floor. I’ve come undone,’” Sartorius said. “That is what this bill is. It’s not snipping a little loose thread. It is beginning the unwinding of right of way statutes, franchise agreements and the whole comprehensive system used to oversee the provision of services.”

Local governments across the country find themselves in a similar spot to Fort Scott, as they receive cuts of profit from cable companies but not streaming firms. As streaming services grow in popularity and people cut cable from their budget, municipalities have reported a notable decline in revenue from cable companies.

Streaming services argue efforts to place them under these franchise fees are desperate attempts to recoup these lost funds.

Some stakeholders have expressed concerns a franchise fee would trickle down and cost Kansas consumers more money if subscription costs are raised to offset the tax.

The debate over this exemption left Sen. Rob Olson, chairman of the Senate Federal and State Affairs Committee, questioning whether extending this tax to streaming platforms would be appropriate in the first place.

“You’re not able to charge that tax at Blockbuster or whatever. The cities can’t tax everything,” the Olathe Republican said. “Where does this stop? Is it going to go to everything on the internet?”

The question raises the broader issue of state and federal laws not matching how residents consume media. Debate in Kansas has largely focused on whether to treat these streaming or digital services as a physical disc for tax purposes.

The tax proposal has stalled in recent years amid concerns it would disproportionately burden middle-class families using these platforms.

John Federico, a Topeka lobbyist who serves as president of the Kansas Cable Telecommunications Association, urged the panel to reject the legislation for now and instead take a measured approach to review the issue at large. If the bill were to pass, he said, it would be nearly impossible to make meaningful changes.

“Give some thoughtful consideration to looking at the laws on the books, what we are receiving for services, who’s providing these services and see if there’s a way to make this work and an opportunity to modernize our telecommunications taxes or fees,” Federico said.