Does a company that sells subscriptions to an online streaming-video platform — ad-free viewing, chat perks, longer video storage, priority support — have to charge Utah sales tax on those subscriptions?
Plain-English summary
A company that runs an internet-based streaming-video platform — the facts describe a Twitch-style site where "Viewers" watch real-time and on-demand videos, chat with the streamers, and can subscribe for perks — asked whether the subscriptions it sells are subject to Utah sales and use tax. The Commission concluded they are not.
The key move is that Utah does not tax everything; § 59-12-103(1) lists the specific transactions that are taxable, and a subscription only gets taxed if what the subscriber is really buying lands on that list. So the Commission broke the subscription into its four benefits and asked whether each one, if sold by itself, would be taxable:
- Ad-free viewing — Not taxable. Anyone can watch all the content for free; paying subscribers are only buying the removal of ads, which is not a transaction listed in § 59-12-103(1). (Even paying for the streamed video itself wouldn't be taxable, the Commission noted.)
- Chat enhancements (extra emoticons, colors, a subscriber icon, faster/no-delay comments, a subscribers-only chat mode) — Not taxable. The essence is the ability to communicate in an interactive community, which is a nontaxable service. The emoticons and icons aren't "products transferred electronically" because subscribers never download them — they can only be used on the platform.
- Extra time to store videos (VOD) — Not taxable. A streamer-subscriber can keep saved videos on the company's servers longer. Applying the B.J.-Titan essence-of-the-transaction test, the company can delete the videos at any time and tells users to back up elsewhere, so the essence is the service of keeping the video available, not the use of the company's storage hardware.
- Priority customer support — Not taxable. Customer support isn't a transaction listed in § 59-12-103(1).
Because none of the four benefits would be taxable sold separately, the Commission held that none of them is taxable when bundled into one non-itemized subscription price either. The subscriptions are nontaxable.
What this means for you
Streaming platforms, online communities, and content sites
If subscribers are paying for access to an interactive community, ad-free viewing of free content, or other services — and they are not downloading files or buying the use of your software — Utah generally treats the subscription as a nontaxable service. The Commission has now reached that result repeatedly (PLR 12-002, 16-005, 17-003). The danger line is downloads and software: the moment a subscriber downloads a movie, song, e-book, or article for offline use, or buys the right to use prewritten software, that piece becomes taxable — see the companion ruling PLR 17-003, where a professional membership came out taxable for exactly that reason.
Why "look beyond the label" matters
The Commission doesn't tax (or exempt) something because it's called a "subscription." It looks at the underlying nature of each benefit. A "subscription" can be fully nontaxable (this ruling), fully taxable, or a taxable/nontaxable mix billed as one price. If you bundle taxable and nontaxable items, keep books and records that let you separate the values — otherwise Utah can tax the whole bundle.
Accountants and tax professionals
This ruling is a clean application of the rule that Utah sales tax reaches only the transactions enumerated in § 59-12-103(1), combined with the B.J.-Titan essence-of-the-transaction analysis (842 P.2d 822 (Utah 1992)) for the storage benefit. Note the recurring digital fork: streamed/online-only access = nontaxable service, but downloaded-for-offline-use = taxable "product transferred electronically" under § 59-12-103(1)(m). Watch the streaming-tax footnote too: if access to videos is sold as a multi-channel video or audio service, § 59-26-103 can apply — here it didn't, because the video was free.
Common questions
Q: Are online subscriptions taxable in Utah?
A: It depends on what the subscriber is actually buying. Subscriptions for nontaxable services — ad-free viewing, access to an interactive community, customer support, online-only viewing — are not subject to Utah sales tax. Subscriptions that deliver downloadable digital products (movies, music, e-books, articles) or the use of prewritten software are taxable. Many subscriptions are a mix.
Q: Why weren't the emoticons and chat perks taxable as digital products?
A: A "product transferred electronically" has to be something that would be taxable if delivered another way, and the subscriber has to actually receive it. Here subscribers never download the emoticons, colors, or icons — they can only use them on the platform — so nothing is "transferred." The essence is the service of communicating in the community.
Q: We bundle taxable and nontaxable perks into one subscription price. Is the whole thing taxed?
A: Not necessarily. If every benefit is nontaxable (as here), the bundle is nontaxable. But if the bundle mixes taxable and nontaxable items, Utah taxes the entire price unless your books and records can identify the nontaxable portion by reasonable, verifiable standards. See PLR 17-003 for how that plays out.
Q: Can my streaming company rely on this ruling?
A: No. A Utah private letter ruling binds the Commission only for the taxpayer and facts it was issued to. It shows how the Commission reasons, but your facts may differ — for example, if your viewers must pay to watch, or if subscribers download content, the analysis can change.
Citations and references
Statutes and cases:
- Utah Code § 59-12-103(1) — the transactions subject to Utah sales and use tax (subscriptions are taxable only if a benefit lands on this list)
- Utah Code § 59-12-102(95) — definition of "product transferred electronically" (requires actual transfer to the purchaser)
- Utah Code § 59-12-102(93), (125)(b)(v) — prewritten computer software is taxable tangible personal property
- Utah Code § 59-26-103 — multi-channel video or audio service tax (noted but inapplicable; the video was free)
- B.J.-Titan Services v. State Tax Comm'n, 842 P.2d 822, 825 (Utah 1992) — essence-of-the-transaction test
Related Utah rulings cited: PLR 17-003 and 16-005 (memberships), PLR 15-008 (renewal fees), PLR 12-002 (online news/streaming service).
Source
- Landing page: https://tax.utah.gov/commission/rulings/
- Original PDF: https://files.tax.utah.gov/tax/commission/ruling/18-002.pdf
Original ruling text
FINAL PRIVATE LETTER RULING
18-002
RESPONSE LETTER
April 10, 2019
Mr. NAME-1
COMPANY-2
Attn: Tax
P.O. Box #####
CITY, STATE AND ZIP CODE
Dear NAME-1:
This letter is in response to your request for a private letter ruling for COMPANY
(“Company”), which sells subscriptions. Through the subscriptions, subscribers
(“Subscriber(s)”) are entitled to multiple benefits. The Subscribers receive these benefits as they
interact with the Company’s internet-based platform (“Platform”). You have asked whether the
sales of these subscriptions are subject to Utah sales and use taxes. This private letter ruling
concludes that the Company’s sales of subscriptions are not subject to Utah sales and use taxes.
This conclusion is further explained in Section III. of this private letter ruling request.
I. Facts
You have explained that through the Platform, people (“Viewers”) can watch streaming
videos.
Viewers can view these videos without registering with the Company or paying to access
or view the videos. Viewers without a subscription will be subject to advertising. Viewers who
are Subscribers obtain various levels of ad-free viewing.
You explained that the videos include real-time streaming videos and videos on demand
(“VOD”). You explained that the Company obtains licenses for the videos from third parties
(“Third Party” or “Third Parties”). These Third Parties often create videos of themselves doing
various activities.
While viewing real-time streaming videos, Viewers can type comments using the
Platform’s chat function. Third Parties can type comments back. Viewers without a subscription
may type comments using basic chat colors and emoticons. Subscribers may type comments
using additional emoticons and/or colors, depending on the type of subscription. Subscribers
also receive a special icon indicating the type of subscription they purchased. Additionally, for
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one of the subscriptions, Subscribers’ comments appear more quickly; there is no delay between
a Subscriber typing a message and that message appearing in the chat.1 Furthermore, for that
same subscription, Subscribers may access a specialized chat mode for Subscribers only. For a
different subscription, Subscribers receive the opportunity to send a custom message to the
Platform’s community when first subscribing.
The Platform is designed to encourage comments and other interactions among Third
Parties and Viewers, instead of having Viewers passively watch videos. Viewers with and
without subscriptions can donate to Third Parties using the Platform’s chat function. Third
Parties participating in gaming activities frequently provide donors with additional playing
opportunities. These opportunities include a Viewer playing a video game with the Third Party
in a video being streamed on the Platform or a Viewer playing with a particular character, item,
or other in-game setting requested by the Viewer. These opportunities motivate Viewers to
become Subscribers and donors.
As mentioned previously, Third Parties provide the Company with videos. In addition to
providing the Company with real-time streaming videos, Third Parties can save their past videos
and post them to the Platform for Viewers to access as videos on demand (“VOD”). The Third
Parties can save their VOD to the Platform without charge, by default, for ### days. If a Third
Party becomes a Subscriber of a certain subscription, the Third Party may save their VOD to the
Platform for ### days.
You submitted a copy of an agreement (“Agreement”) between the Company and its
Subscribers. The Agreement is titled “Terms of Service.” Under § ### of the Agreement, the
Company has the right and absolute discretion to remove any Third-Party videos saved on the
Platform at any time for any reason without notice. That section also explains that Third Parties
are solely responsible for backing up their videos.
You further explained that Subscribers with a certain subscription receive priority
customer support.
The various benefits of the subscriptions have been described above. The exact
groupings of benefits for each subscription have not been described above because this private
letter ruling ultimately concludes that none of the benefits, if sold separately, would be subject to
Utah sales and use taxes.
1
This private letter ruling does not provide the specific benefits for each type of subscription because this private
letter ruling ultimately concludes that all benefits presented, if sold separately, would not be subject to Utah sales
and use taxes.
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II. Applicable Law
Utah Code Annotated § 59-12-103(1) imposes tax on certain transactions, stating the
following in part:2
A tax is imposed on the purchaser . . . on the purchase price or sales price for
amounts paid or charged for the following transactions:
(a) retail sales of tangible personal property made within the state;
....
(k) amounts paid or charged for leases or rentals of tangible personal property if
within this state the tangible personal property is:
(i) stored;
(ii) used; or
(iii) otherwise consumed;
(l) amounts paid or charged for tangible personal property if within this state the
tangible personal property is:
(i) stored;
(ii) used; or
(iii) consumed; and
(m) amounts paid or charged for a sale:
(i) (A) of a product transferred electronically; . . .
....
(ii) regardless of whether the sale provides:
(A) a right of permanent use of the product; or
(B) a right to use the product that is less than a permanent use, including
a right:
(I) for a definite or specified length of time; and
(II) that terminates upon the occurrence of a condition.
Utah Code Ann. § 59-12-102 defines various terms, stating in part:
As used in this chapter:
....
(26) "Computer" means an electronic device that accepts information:
(a) (i) in digital form; or
(ii) in a form similar to digital form; and
(b) manipulates that information for a result based on a sequence of
instructions.
(27) "Computer software" means a set of coded instructions designed to cause:
(a) a computer to perform a task; or
(b) automatic data processing equipment to perform a task.
....
2
For purposes of § 59-12-103(1), § 59-12-102(99) defines “purchase price” or “sales price,” § 59-12-102(109)
defines “retail sale,” § 59-12-102(110) defines “sale,” and § 59-12-102(125) defines “tangible personal property.”
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(93) (a) . . . “prewritten computer software” means computer software that is not
designed and developed:
(i) by the author or other creator of the computer software; and
(ii) to the specifications of a specific purchaser.
....
(95) (a) Except as provided in Subsection (95)(b), "product transferred
electronically" means a product transferred electronically that would be
subject to a tax under this chapter if that product was transferred in a
manner other than electronically.
(b) "Product transferred electronically" does not include:
(i) an ancillary service;
(ii) computer software; or
(iii) a telecommunications service.
....
(125) . . . .
(b) "Tangible personal property" includes:
....
(v) prewritten computer software, regardless of the manner in which the
prewritten computer software is transferred.
....
III. Analysis
As stated previously in this private letter ruling, you have asked whether the Company’s
sales of subscriptions are subject to Utah sales and use taxes. This private letter ruling concludes
that the Company’s sales of subscriptions are not subject to Utah sales and use taxes. The
analysis supporting this conclusion is below.
This Section III. includes the following items:
● A list of the subscription benefits divided into four distinct items or categories
(Subsection III.A.).
● Analyses of the taxability of each of the four distinct items or categories if sold
separately (Subsections III.B. through III.E.).
● A summary of the taxability of the subscriptions (Subsection III.F.).
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A. The Benefits of the Subscriptions can be Divided into Four Distinct Items or
Categories.
The Company’s subscriptions provides Subscribers with the following benefits:
Ad-free Viewing
Chat Function Enhancements
Additional Time to Save VOD on the Platform: ### days instead of ### days
Priority Customer Support
To analyze the taxability of the purchase price of a subscription, the taxability of the underlying
items must be considered. As seen with the Commission’s analyses of unrelated memberships in
Private Letter Rulings (“PLR(s)”) 17-003 and 16-005 and of renewal fees in PLR 15-008, one
must “look[] beyond that label [attached to a product] to examine the underlying nature of the
transaction.”3 This private letter ruling uses this approach to determine the taxability of the
Company’s subscriptions. When a person purchases a subscription, the person is actually
purchasing the four benefits listed above.
Playing games with Third Parties is not part of the subscriptions. The Company does not
provide Subscribers with the right to play games with Third Parties. The Third Parties determine
with whom they play.
B. If the Ad-Free Viewing Were Sold Separately, the Benefit Would Not be
Taxable Under § 59-12-103(1).
One of the subscription benefits is ad-free viewing. Viewers without subscriptions can
access all streamed content. Thus, when Subscribers purchase ad-free viewing, they are not
paying to access the streamed content.4,5 The purchase of ad-free viewing is not among the
transactions enumerated in § 59-12-103(1) as being taxable. Thus, if the ad-free viewing were
sold separately, the benefit would not be taxable.
3
Private letter rulings can be accessed through the tax.utah.gov website.
4
In general, if a purchaser were to pay to view without downloading videos streamed over the internet, those
transactions would not be subject to Utah sales and use taxes. Thus, if the Subscribers were paying for access to
streamed content, those transactions would not be subject to Utah sales and use taxes.
5
Although you have not inquired about the Multi-Channel Video or Audio Service Tax Act, which is found in Utah
Code Annotated, Title 59, Chapter 26, this private letter ruling provides the following comments. In general, if
access to streamed videos is sold as part of a multi-channel video or audio service, the amounts paid or charged for
that service are subject to the multi-channel video or audio service tax under § 59-26-103. The ad-free viewing of
this private letter ruling is not subject to the multi-channel video or audio service tax because Subscribers are not
purchasing multi-channel video or audio service. Instead, the video content is available free of charge.
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C. If the Chat Function Enhancements Were Sold Separately, those Enhancements
Would Not be Taxable Under § 59-12-103(1).
The chat function enhancements include the following:
Additional emoticons and/or colors.
A special icon indicating the type of subscription the Subscriber purchased.
The ability to comment more quickly, without a delay between a Subscriber typing a
message and that message appearing in the chat.
A specialized chat mode for Subscribers only
An ability to send a custom message to the Platform’s community when first
subscribing
You also explained the chat function’s importance as follows: the Platform is designed to
encourage interactions among Third Parties and Viewers, instead of having Viewers passively
watching the videos.
In general, the sale of the ability to participate in an interactive community is not subject
to Utah sales and use taxes. PLR 17-003 concerned the taxability of the sale of “the ability to
participate in an interactive community comprised of [people holding memberships] of [a]
[c]ompany.” PLR 17-003 concluded that “[i]f the [c]ompany were to sell this benefit separately,
the [c]ompany would be selling a service that is not subject to Utah sales and use taxes.”
PLR 17-003 provided an “essence of the transaction” analysis supporting its conclusion. In that
analysis, PLR 17-003 considered the use of the company’s computer software in providing the
access to the interactive community. PLR 17-003 concluded the following:
The [c]ompany’s software that supports this access to the interactive community
is merely incidental to [the] service [of access to the interactive community]. The
[c]ompany is using or consuming that software in providing the [m]embers with
the service of access to the interactive community.
Applying PLR 17-003 to this private letter ruling, if the Company were to sell access to the chat
function, the essence of the transaction would not be the use of the Company’s software.
Instead, the essence of the transaction would be the purchase of the ability to communicate with
other Viewers and Third Parties.6
The Company does not sell access to the chat function, though; the Company provides
the chat function free of charge. Instead, the Company sells chat function enhancements. The
essence of the transaction for the sale of the use of the chat function enhancements is for
Subscribers to communicate better with other Viewers and Third Parties. As with the use of the
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If the essence of the transaction had been the sale of the use of the Company’s software, the sale of that use in Utah
would have been taxable. The sale of the use of prewritten computer software in Utah is taxable under
§ 59-12-103(1)(a), (k), and (l). Prewritten computer software is defined in § 59-12-102(93) and is further defined as
being tangible personal property in § 59-12-102(125)(b)(v).
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chat function generally, the Company’s computer software is involved. The use of the
Company’s computer software is incidental to the services of both the chat function and the chat
function enhancements. The Company is consuming the computer software for the chat function
and the enhancements when the Company provides the chat function and the enhancements to
the Viewers and Subscribers.
In addition to the sale of the chat function enhancements not being the sale of prewritten
computer software, the sale of the chat function enhancements are also not the sale of products
transferred electronically, as explained below. The chat function enhancements include
emoticons, colors, and special icons. Under § 59-12-102(95)(a), a “‘product transferred
electronically’ means a product transferred electronically that would be subject to a tax under
this chapter if that product was transferred in a manner other than electronically” (emphasis
added). The Company does not transfer the emoticons, colors, and special icons to Subscribers;
the Subscribers do not download them. The Subscribers can only use the emoticons, colors, and
special icons on the Platform.
Overall, the sale of the use of the chat function enhancements is the sale of a service not
taxable under § 59-12-103(1).
D. If the Additional Time to Save VOD on the Platform Were Sold Separately, the
Benefit Would Not be Taxable Under § 59-12-103(1).
Subscribers who are also Third Parties may receive additional time to save VOD on the
Platform. They may save their videos ### days instead of ### days. Under the Agreement, the
Company has the right and absolute discretion to remove any Third-Party videos saved on the
Platform at any time for any reason without notice. Also under the Agreement, the Third Parties
are solely responsible for backing up their videos.
Analysis of the essence of the transaction is appropriate for this situation. A Subscriber is
storing videos on the Company’s Platform, which storage would be on the Company’s hardware.
There is also a service involved; the Subscriber can have his or her VOD available to Viewers
for ### days instead of ### days because he or she can store his or her videos on the Company’s
Platform longer.
The Utah Supreme Court explained the essence of the transaction as follows:
[T]he essence of the transaction theory[] focuses on the nature of what was sold
and whether it primarily entails tangible personal property. . . . This theory
examines the transaction as a whole to determine whether the essence of the
transaction is one for services or for tangible personal property. The analysis
typically requires a determination either that the services provided are merely
incidental to an essentially personal property transaction or that the property
provided is merely incidental to an essentially service transaction. . . .
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B.J.-Titan Services v. State Tax Comm’n, 842 P.2d 822, 825 (Utah 1992) (internal
citations removed).
The tangible personal property involved is the Company’s hardware used for storage.
Under the Agreement, the Company can remove the Subscriber’s videos from the Company’s
hardware at any time for any reason without notice. Additionally, the Agreement instructs
Subscribers to store their videos elsewhere. Thus, the Subscribers cannot reasonably rely on the
Company’s hardware as the Subscribers’ primary or backup storage for the Subscribers’ videos.
The service involved is the Company’s making a Third Party Subscriber’s VOD available
to Viewers for a longer time period, ### days instead of ### days. This VOD service is the
reason Third Parties would store their videos on the Company’s Platform.
After considering the Company’s computer hardware for storage and the VOD service
the Company provides to Third Parties, the essence of the transaction for the additional time to
save VOD is the Third Parties’ use of the Company’s VOD service and not the Third Parties’ use
of the Company’s hardware.
The sale to Third Party Subscribers of the use of the Company’s VOD service is not
among the taxable transactions listed in § 59-12-103(1). Thus, if the additional time to save
VOD on the Platform were sold separately, the benefit would not be subject to Utah sales and
use taxes.
E. If the Priority Customer Support Were Sold Separately, the Benefit Would Not
be Taxable Under § 59-12-103(1).
You have not provided details about what is involved in the priority customer support.
This private letter ruling assumes the priority customer support does not involve the Company
transferring products transferred electronically to the Subscribers or the Company providing use
of tangible personal property, including the Company’s software, to the Subscribers. In general,
customer support is not subject to Utah sales and use taxes because the sale of that service is not
among the transactions enumerated in § 59-12-103(1) as being taxable.
F. Summary
None of the subscription benefits are subject to Utah sale and use taxes if they were sold
separately. Likewise, none of the subscription benefits are taxable when they are sold for one
non-itemized price. Therefore, the Company’s sales of subscriptions that provide the benefits
analyzed in this private letter ruling are not subject to Utah sales and use taxes.
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IV. Conclusion
The Company’s sales of subscriptions to Subscribers are not subject to Utah sales and use
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taxes.
The Tax Commission’s conclusions are based on the facts as you described them and the
Utah law currently in effect. Should the facts be different or if the law were to change, a
different conclusion may be warranted. If you feel we have misunderstood the facts as you have
presented them, you have additional facts that may be relevant, or you have any other questions,
please feel free to contact the Commission.
Additionally, you may also appeal the private letter ruling in the following two ways.
First, you may file a petition for declaratory order, which would serve to challenge
the Commission's interpretation of statutory language or authority under a statute. This petition
must be in written form, and submitted within thirty (30) days after the date of this private letter
ruling. You may submit your petition by any of the means given below. Failure to submit
your petition within the 30-day time frame could forfeit your appeal rights and will be
deemed a failure to exhaust your administrative remedies. Declaratory orders are discussed
in Utah Administrative Code R861-1A-34 C.2., available online
at http://tax.utah.gov/commission/effective/r861-01a-034.pdf, and in Utah Administrative Code
R861-1A-31, available online at http://tax.utah.gov/commission/effective/r861-01a-031.pdf.
Second, you may file a petition for redetermination of agency action if your private letter
ruling leads to an audit assessment, a denial of a claim, or some other agency action at a division
level. This petition must be written and may use form TC-738, available online
at http://tax.utah.gov/forms/current/tc-738.pdf. Your petition must be submitted by any of the
means given below, within thirty (30) days, generally, of the date of the notice of agency action
that describes the agency action you are challenging.
7
This private letter ruling does not address the Company’s possible Utah sales and use tax obligations for the
Company’s consumption of taxable property and services when the Company provides its nontaxable services to its
Subscribers. Notably, whether the Company is consuming any property and services in Utah is not explained in the
facts of your request letter.
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You may access general information about Tax Commission Appeals online
at http://tax.utah.gov/commission-office/appeals. You may file an appeal through any of the
means provided below:
• Best way—by email: [email protected]
• By mail: Tax Appeals
USTC
210 North 1950 West
Salt Lake City, UT 84134
• By fax: 801-297-3919
For the Commission,
Lawrence C. Walters
Commissioner
LCW/aln
18-002
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