Executive Summary

In a landmark July 2025 decision, the Colorado Court of Appeals in Netflix, Inc. v. Department of Revenue held that Netflix's digital streaming subscriptions constitute the sale of tangible personal property under Colorado’s 1935 sales tax statute. This reversed a lower court’s grant of summary judgment to Netflix and significantly broadened the taxability of digital goods across the state. The opinion provides clarity—perhaps controversy—on what constitutes "corporeal" property in an age where physical media has given way to digital delivery.

This case is a shot across the bow not just in Colorado but nationwide: state departments of revenue may now feel emboldened to pursue taxation of digital subscriptions under longstanding sales tax statutes—statutes originally written for a world of vinyl records and VHS tapes, not Netflix or Spotify.

I. Background of the Dispute

Colorado’s retail sales tax law, rooted in a 1935 statute, imposes a tax on “the purchase price paid or charged upon all sales and purchases of tangible personal property at retail.” The law defines tangible personal property as “corporeal personal property,” without elaborating what exactly constitutes corporeality in a modern context.

Netflix, which sells digital streaming subscriptions for video and games, had long taken the position that its services were not taxable under this statute. In 2013, it sought a private ruling from Colorado’s Department of Revenue (DOR) to that effect. The DOR declined to issue a ruling but began rulemaking that culminated in a 2021 administrative rule clarifying that digital goods—including streaming media—qualify as tangible personal property regardless of delivery method (streaming, download, or physical media). That same year, the General Assembly amended the statute to mirror the DOR’s position, specifically including digital goods in the definition of tangible personal property.

Netflix paid taxes under protest for selected periods before and after the regulatory and statutory changes, then sought a refund, which was denied by DOR. Netflix sued, and the trial court sided with Netflix, holding that its services were not taxable because they weren’t “tangible”—they could not be “touched.” The Court of Appeals reversed.

II. The Court’s Holding and Reasoning

The key issue: Are Netflix streaming subscriptions “tangible personal property” under the original 1935 sales tax statute?

The appellate court said yes—and in doing so, it reframed the meaning of tangibility in the context of 20th and 21st-century commerce.

A. Corporeality Beyond Touch

While Netflix argued that “corporeal” means something that can be touched, the Court looked to historical legal definitions and concluded otherwise. It relied heavily on the 1933 edition of Black’s Law Dictionary, which explained that corporeal property is anything that affects the senses—not just touch, but also sight and hearing. Thus, streamed movies and shows that subscribers can see and hear fall squarely within that category, even if there’s nothing to physically handle.

B. Binary Between Corporeal and Incorporeal

The Court emphasized that legal property has historically been classified as either corporeal (tangible) or incorporeal (intangible), with no third option. If Netflix subscriptions are not incorporeal (they’re not rights like a license or a debt instrument), they must be corporeal. Since streamed media can be seen and heard and provides a perceptible experience, it has a physical presence—even if that presence is digital.

C. Modern Examples and Analogues

The Court analogized Netflix to jukeboxes—specifically, a 1943 Arizona case taxing coin-operated music players. The Arizona statute defined tangible personal property as anything perceptible to the senses, and the court ruled that music played from jukeboxes was taxable. The Colorado Court found this persuasive and applicable to Netflix: the experience of streaming is “perceptible to the senses,” thus taxable.

D. Technological Neutrality

The opinion warns against anchoring taxability to the delivery method. It emphasized that many items once delivered in touchable formats (books, photos, records) are now consumed digitally. To exempt modern equivalents would render the tax law obsolete and arbitrary, which the Court flatly rejected.

III. Legal and Policy Implications

A. In Colorado

1. Precedential Impact. This ruling clarifies that streaming subscriptions are taxable under Colorado’s long-standing sales tax framework, even before the 2021 amendments. It removes ambiguity for the DOR and paves the way for assessments not only against Netflix but against other digital platforms such as Spotify, Hulu, and others.
2. TABOR Challenges Avoided (For Now). Netflix had also challenged the 2021 statutory amendments and DOR rule under Colorado’s Taxpayer’s Bill of Rights (TABOR), arguing they imposed a new tax without voter approval. The Court dodged this issue entirely by finding the taxability already existed under the original law. However, if future administrative interpretations extend beyond perceptible digital goods, TABOR arguments may reemerge.

B. Beyond Colorado

1. A Template for Other States. States with similarly worded statutes—particularly those defining tangible property as “corporeal”—may adopt Colorado’s reasoning. This could accelerate digital taxation efforts nationwide, especially in states looking to modernize sales tax regimes without new legislation.
2. Industry-Wide Consequences. Streaming platforms and SaaS providers must reassess tax compliance strategies. If streaming a movie is tangible, what about cloud-based software, AI tool subscriptions, or interactive online classes? Businesses relying on narrow views of tangibility are on notice.
3. Litigation Prospects. The door remains open for further constitutional and statutory challenges. Plaintiffs in other jurisdictions may attempt to distinguish their digital offerings or contest administrative overreach under local laws or constitutional provisions similar to TABOR.

IV. Conclusion

The Colorado Court of Appeals has declared that tangibility in the digital age is not about touch, but perceptibility. The Netflix ruling significantly widens the scope of taxable digital commerce and provides a robust legal framework for states to follow. It signals a shift toward harmonizing sales tax rules with how consumers actually interact with media and digital products today.

For attorneys, tax professionals, and digital service providers, this decision is a wake-up call: the lines between the intangible and the taxable are blurring, and the days of tax-free streaming may be numbered. This seems likely to be reviewed by the Colorado Supreme Court, and we may provide updates after that review.