Amazon Services LLC (DO) (2016)

Topic Code: B144 Bundled Service Contracts Document Reference: 16300080

BEFORE THE IOWA DEPARTMENT OF REVENUE

HOOVER STATE OFFICE BUILDING

DES MOINES, IOWA

_____________________________________________________________________________

IN THE MATTER OF *

AMAZON SERVICES LLC * DECLARATORY ORDER

2021 7th Avenue *

Seattle, WA 98121 *

* DOCKET NO. 2017-240-2-0000

_____________________________________________________________________________

Pursuant to a Petition for Declaratory Order filed with the Iowa Department of Revenue

(hereinafter referred to as “Department”) by AMAZON SERVICES LLC (hereinafter referred

to as “Petitioner”) on September 2, 2016, and in accordance with Iowa Code, section 17A.9

(2016) and Department rule 701 IAC 7.24 (17A) “Declaratory order—in general,” Iowa

Administrative Code, the Director issues the following order.

I. FACTS

The finding of facts are based on the Petition for Declaratory Order, Exhibits A and B to

the Petition, the internet citations provided in the Petition, other pages on Amazon’s websites,

and the Department’s review of Prime.

When considering a petition for declaratory order, “[t]he department may solicit comments or

information from any person on the questions raised. Also, comments or information on the

questions raised may be submitted to the department by any person.” Iowa Admin. Code r. 701-

7.24(7) (2016).

Petitioner is an affiliate of Amazon.com, Inc. Amazon.com, Inc. and its affiliates sell

and provide goods and services through various websites, including through www.Amazon.com

(“Website”).

A. Overview of Amazon Prime.

Petitioner sells Amazon Prime (“Prime”). Participants in Prime are referred to by

Petitioner as “Prime Members.” Prime Members must agree to the Prime Terms and Conditions

before activating Prime. Petitioner currently sells Prime for $99 per year, or $10.99 per month.

Petitioner offers a free 30-day trial Prime Membership.

Prime benefits are subject to change in

the future. As of the date of the Petition, Prime included the following benefits, products, and

services:

 Prime Video: Prime Video allows Prime Members to “[s]tream thousands of TV

shows, movies, and Award-Winning Amazon Originals” on demand at no additional

cost.

Members can view these television shows and movies on a television

equipped with the proper hardware, a computer, or another compatible device.

Amazon Fire TV is an example of hardware that connects to a television and allows

a Member to stream Prime Videos. Prime Members can also download Prime

Videos onto compatible devices for viewing later. When a Prime Membership ends,

Petitioner claims it does not directly provide benefits to Prime Members. Instead, Petitioner

states that it contracts with other Amazon affiliates, and these affiliates provide the benefits to

Prime Members. The relationship between these Amazon affiliates does not alter the analysis

regarding the taxability of Prime. Regardless of what affiliate actually provides individual

Prime benefits, Petitioner is the retailer. See Iowa Code § 423.1(47) (defining “retailer”). As

the retailer, Petitioner is ultimately responsible for collecting and remitting any tax due on the

Prime Memberships. See id. § 423.14 (requiring collection of sales and use tax by retailers).

http://www.amazon.com/gp/prime (last visited Dec. 8, 2016).

https://www.amazon.com/Prime-Video/b?ie=UTF8&node=2676882011 (last visited

December 8, 2016).

the former Member loses access to any downloaded Prime Videos and can no longer

stream Prime Videos.

 Amazon Dash Button: Prime Members may purchase an Amazon Dash Button.

Currently, only Prime Members are eligible to purchase Amazon Dash Buttons. The

Amazon Dash Button allows a user to reorder a product by pressing a button.

Pressing the button places an order through the associated customer’s Amazon.com

account for the specific item. Each button works for a single product. The

appropriate sales and use tax is collected on sales of the Dash Button wherever

Amazon.com LLC is required to collect sales and use tax.

 Kindle First: The Kindle First feature allows Prime Members who own eligible

Kindle devices to download, with no additional charge, one electronic book per

month from four electronic books selected by Amazon Publishing editors. The

selected electronic book becomes a permanent part of the Prime Member’s Kindle

library.

 Kindle Owners’ Lending Library: The Kindle Owners’ Lending Library allows

Prime Members who own Kindle devices to choose from thousands of electronic

books to borrow, at no additional cost, as frequently as one book a month, with no

due dates. When a Prime Membership ends, the former Member loses access to any

borrowed electronic books.

 Prime Early Access: Prime Members receive 30-minute early access to select

“Lightning Deals” on the Website and sales events on www.MyHabit.com. The

deals and sales events are designated as such on the product detail page or on the

respective websites.

 Prime Elements: Prime Elements is a line of premium, everyday essential

products—currently limited to baby wipes—only available for purchase by Prime

Members.

 Prime Music: Prime Members may stream or download songs and albums from

Prime Music at no additional charge. Members may play Prime Music on a

computer, other compatible device, or a television connected to a device such as

Amazon Fire TV. When a Prime Membership ends, the former Member loses access

to any albums and music downloaded from Prime Music.

 Prime Pantry: The heavy/bulky items in Prime Pantry are only available for

purchase by Prime Members. The Prime Pantry benefit allows Prime Members to

ship up to 45 pounds of heavy/bulky items for a flat shipping fee of $5.99.

 Prime Photos: Prime Members are eligible to store unlimited digital photographs

and up to five gigabytes of other data with Amazon Cloud Drive at no additional

charge.

 Prime Pricing: Prime Pricing provides Prime Members discounts on certain items of

tangible personal property. For example, Prime Members can purchase certain

televisions and software at a discount.

 Shipping: Prime Members receive free two-day shipping and other discounted

shipping benefits on eligible purchases made on the Website. Also, certain products

sold through the “Fulfillment by Amazon” program are eligible for Prime shipping

benefits.

Petitioner characterizes Prime as simply a non-taxable membership. Petitioner alleges no

tangible personal property or services are provided at the time Prime is purchased. Petitioner

further states that it does not know which benefits of Prime a member will ultimately use. The

Department rejects the characterization of Prime as simply a club that grants the “intangible

B. Additional Details about Prime Video.

Prime Video is included with every Prime Membership.

Petitioner also sells Prime

Video by itself (without the other benefits of Prime) for $8.99 per month.

Prime Video allows

subscribers to view thousands of television shows and movies.

Such shows and movies include

both original content produced by Amazon (“Amazon Originals”) and licensed content from

other media companies, including many television networks.

Subscribers may access Prime Video through Amazon’s Fire TV, another compatible

streaming device connected to a television, a computer, or a mobile device. Regardless of the

device, Prime users may access television programming by selecting a tab called “TV Shows.”

The “TV Shows” tab contains television programs that are available for Prime subscribers to

right to access certain benefits.” Prime includes the sale of services such as Prime Video. See

Iowa Code § 423.1(50) (2015). Under either the Petitioner’s characterization or the

Department’s characterization, such a transaction constitutes a “sale” under Iowa Code section

423.1(50). Furthermore, an individual customer’s actual use of particular Prime goods or

services does not impact the analysis in this Order. For example, the issue of whether or how

much a consumer actually used his dating service, pay television, or country club membership

in a given month does not alter the taxation of these purchased services. See Iowa Code

423.2(6)(a) (2015). The Iowa General Assembly clearly knows how to make a taxpayer’s actual

use of a product relevant to its taxation. See, e.g., Iowa Code § 423.3(47) (2015) (exempting

certain tangible personal property from sales and use tax if such property is “[d]irectly and

primarily used in processing by a manufacturer”). The legislature did not place this restriction

in the statutes applicable to this Order. Therefore, the Department declines to create and impose

such a subjective factor to determine taxation. See Kay-Decker v. Iowa State Bd. of Tax Review,

857 N.W.2d 216, 228 (Iowa 2014) (rejecting the taxpayer’s argument that tax on telephone lines

should not apply since the telecommunications lines were primarily used to provide cable

service, when the statute did not expressly contain a primary use standard).

https://www.amazon.com/Amazon-Prime-One-Year-Membership/dp/B00DBYBNEE (last

visited Dec. 8, 2016).

Id.

https://www.amazon.com/Prime-Video/b?ie=UTF8&node=2676882011 (last visited

December 8, 2016).

https://www.amazon.com/Prime-Video/b?node=2676882011 (last visited Dec. 8, 2016).

See, e.g., https://www.amazon.com/Amazon-

Video/b/ref=topnav_storetab_atv?_encoding=UTF8&node=2858778011 (last visited Dec. 8,

2016).

review in various categories.

Such categories include, “Prime Amazon Original Series,”

“Prime Trending TV,” “Prime Originals & Exclusive TV for Kids,” “Prime Exclusive TV,”

“Prime Recently Added TV,” “Prime Recommended Kids & Family TV,” “Prime Popular TV,”

“Prime Best of TV,” “Prime Recommended TV,” “Prime Educational Kids TV,” and “Prime

Bingeable TV.”

Prime Video presently includes unlimited streaming of approximately 19 separate

Amazon Original Series.

Amazon releases these programs in seasons.

Each season is a

group of approximately 8 to 12 episodes.

For some Amazon Original Series—including The

Grand Tour, Betas, and Alpha House—Amazon released one new episode per week, each week,

until the season concluded.

For other Original Series, Amazon made all episodes in a season

available to watch on or around the same date.

Episodes of Amazon Original Series are

slightly less than a half hour or hour long, depending on the series.

Each episode of an

Amazon program follows the television rating system (i.e. TV-Y, TV-14, TV-MA, etc.).

Individual episodes contain the label “cc,” to indicate the availability of closed captioning

subtitles.

Many episodes of Amazon Original Series open with a brief advertisement for other

Amazon Original Series and contain the upcoming start of a new season of an Original Series.

The Internet Movie Database a/k/a/ IMDb.com, which is owned by Amazon.com, Inc.,

See id.

https://studios.amazon.com/amazon-originals/series (last visited Dec. 8, 2016).

https://www.amazon.com/Prime-Video/b?node=2676882011 (last visited Dec. 8, 2016).

See, e.g., https://www.amazon.com/b/ref=sv_atv_1?_encoding=UTF8&node=2864549011

(last visited Dec. 8, 2016).

See, e.g., id.

categorizes Amazon Original Series as “TV Series.”

Furthermore, in 2016 the Academy of

Television Arts and Sciences nominated 3 Amazon Original Series for a combined 16 Emmy

nominations.

The Amazon Original Series Transparent, The Man in the High Castle, and

Mozart in the Jungle won a total of 6 Emmys.

Amazon Original Series have also received

Golden Globe nominations and awards in the “Best Television Series” categories.

In addition to Amazon Original Series, Prime subscribers can stream, at no additional

cost, large numbers of other television programs. These include television programs originally

featured on CBS, NBC, PBS, Nickelodeon, HBO, Showtime, FX, the History Channel, and

other television channels. Like Amazon Original Series, these television programs are broken

into seasons. Each season contains episodes that are each approximately one half hour or hour

long. These television programs have television audience ratings and labels to indicate the

availability of close captioning. Much of this licensed content is well-established television

programming. These programs include, among others, television shows such as The Good Wife,

Dora the Explorer, Sesame Street, SpongeBob SquarePants, Downton Abbey, The Sopranos, 24,

Sex and the City, Sons of Anarchy, and Vikings. For an additional monthly charge, users can

also subscribe to premium “channels.”

These premium channels include HBO, Cinemax,

Showtime, and Starz. Much of the Prime television programming and available premium

http://www.imdb.com/title/tt3502262/?ref_=nv_sr_1 (lasted visited Dec. 8, 2016). The

Department takes official notice of this statement as both a generally-known, undisputed

statement by IMDB and as an admission by an Amazon-owned entity. See Iowa Admin. Code r.

701-7.24(7) (2016).

https://www.amazon.com/p/feature/m22v9n9joh3g37z (last visited Dec. 8, 2016).

http://www.emmys.com/awards/nominees-winners (last visited Dec. 8, 2016).

http://www.goldenglobes.com/winners-nominees (last visited Dec. 23, 2016;

https://www.amazon.com/gp/video/storefront/?ie=UTF8&merchId=originals1&pf_rd_r=TWVZ

6TP9WWQKBN1N7452&pf_rd_p=4692f4e3-7eba-448d-9be1-

70026aded3f7&ref=dvm_us_dl_sl_go_gga_18GG|c_166325028421_m_2HwDtdaj-dc_s__ (last

visited Dec. 23, 2016).

https://www.amazon.com/gp/help/customer/display.html?nodeId=201975120 (last visited

Dec. 8, 2016).

channels is the exact same content that is subject to Iowa sales tax when purchased from

traditional cable or satellite providers.

II. ISSUES PRESENTED.

The Petition presents two issues. First, Petitioner asks whether the sale of Prime

Memberships to Iowa customers is subject to Iowa sales and use tax. Second, Petitioner asks

whether providing a free 30-day trial of Prime to Iowa customers is subject to Iowa sales and

use tax.

III. ANALYSIS AND CONCLUSIONS.

A. Declaratory Orders under the Iowa Administrative Procedure Act.

The function of a declaratory order is to provide “reliable advice from an agency as to

the applicability of unclear law.” Bonfield, The Iowa Administrative Procedure Act:

Background, Construction, Applicability, Public Access to Agency Law, The Rulemaking

Process, 60 Iowa Law Rev. 731, 805 (1975). Iowa Code section 17A.9 contemplates

declaratory orders by administrative agencies on a disclosed set of facts. City of Des Moines v.

P.E.R.B., 275 N.W.2d 753, 758 (Iowa 1979). A declaratory order enables the public to secure

definitive binding advice as to the applicability of agency-enforced law to a particular set of

facts. Bonfield, at 822–23.

It is not the function of a declaratory order to resolve issues involving factual analysis

“too complicated to handle outside of an actual adjudication.” Id. at 807. A declaratory order is

not a “contested case” as defined in Iowa Code section 17A.2(5); namely, it is not an

evidentiary hearing, which is also an administrative remedy set forth in Iowa Code chapter 17A

and in the Department's rules. See Iowa Admin. Code r. 701—7.8 (2016). Consequently, for

the purposes of any declaratory order, the Director generally views the issues raised in the

petition as questions of law applicable to future factual situations as disclosed in the petition.

This view is consistent with Department rule 7.24 concerning the issuance of declaratory orders.

Id. r. 701—7.24.

B. Statutory Construction and the Department’s Interpretive Authority.

Under Iowa law, courts “assess the whole statute, not just isolated words and phrases.”

In re J.C., 857 N.W.2d 495, 500 (Iowa 2014). It is presumed the legislature intended an “entire

statute…to be effective.” Iowa Code § 4.4(2) (2015). “Courts must avoid construction which

renders part of a statute superfluous.” State v. Luppes, 358 N.W.2d 322, 324 (Iowa Ct. App.

1984). “If a general provision conflicts with a special or local provision, they shall be

construed, if possible, so that effect is given to both.” Iowa Code § 4.7 (2015). “If the conflict

between the provisions is irreconcilable, the special or local provision prevails as an exception

to the general provision.” Id. Furthermore, “a statute can encompass technologies not in

existence at the time of its promulgation.” Kay-Decker v. Iowa State Bd. of Tax Review, 857

N.W.2d 216, 223 (Iowa 2014) (holding that a tax imposed on “telephone line[s]” and “telephone

companies operating a ‘line’” applied to a cable company offering Voice over Internet Protocol

service (VoIP), even though (1) the technology and transmission of VoIP differed from

traditional telephone transmission and technology and (2) the statute originated in the late 19

and early 20

century and originally applied to telegraph and telephone companies—prior to

advent of cable or VoIP).

The Petition for Declaratory Order involves the application of the facts regarding the

sale of Prime to Iowa’s sales tax laws under Iowa Code chapter 423 and accompanying

regulations. The General Assembly has vested the Department with interpretative authority

over these statutes. See Iowa Code § 422.68 (2015) (“The [D]irector [of the Department of

Revenue] shall have the power and authority to prescribe all rules not inconsistent with the

provisions of this chapter, necessary and advisable for its detailed administration and to

effectuate its purposes.”); Iowa Code § 423.42(1) (2015) (incorporating the same rulemaking

authority from section 422.68 into chapter 423); Iowa Ag Const. Co. v. Iowa State Bd. of Tax

Review, 723 N.W.2d 167, 172-74 (Iowa 2006) (finding the legislature vested the Department

with authority to interpret Iowa’s sales tax statutes); City of Sioux City v. Iowa Dep’t of Revenue

and Finance, 666 N.W.2d 587, 589–90 (Iowa 2003) (same); City of Marion v. Iowa Dep’t of

Revenue and Finance, 643 N.W.2d 205, 206–07 (Iowa 2002) (same).

C. Sales Tax on “Pay Television.”

Iowa imposes sales tax “upon the sales price of all sales of tangible personal property,

consisting of goods, wares, or merchandise, sold at retail in the state.” Iowa Code § 423.2(1)

(2015). “‘Tangible personal property’ means personal property that can be seen, weighed,

measured, felt, or touched, or that is in any other manner perceptible to the senses. ‘Tangible

personal property’ includes electricity, water, gas, steam, and prewritten computer software.”

Iowa Code § 423.1(59) (2015).

Iowa also imposes sales tax upon the sales price of certain enumerated services,

including “pay television.” Iowa Code § 423.2(6)(a) (2015). The Department rules define “pay

television service” as “distributing the signals of one or more television broadcasting stations, or

other television programming to subscribers, and using any transmission path.” Iowa Admin.

Code r. 701—26.56 (2016) (emphasis added).

Additionally, Iowa imposes sales tax upon the sales price of a bundled transaction. Iowa

Code § 423.2(8)(a) (2015). “[A] ‘bundled transaction’ is the retail sale of two or more distinct

and identifiable products, except real property and services to real property, which are sold for

one nonitemized price.” Id.

Furthermore, Iowa imposes a corresponding use tax on the use in Iowa of tangible

personal property and enumerated services. Iowa Code § 423.5(1)(a), (e) (2015). Use tax is

based upon the purchase price. Iowa Code § 423.5(1) (2015). “Purchase price” means the same

as “sales price.” Iowa Code § 423.1(41) (2015).

Iowa provides a sales and use tax exemption for “[t]he sales price of a sale at retail if the

substance of the transaction is delivered to the purchaser digitally, electronically, or utilizing

cable, or by radio waves, microwaves, satellites, or fiber optics.” Iowa Code § 423.3(67)

(2015). This exemption applies to the sale of tangible personal property. Iowa Admin. Code r.

701—231.14 (2016). “Sales of items such as artwork, drawings, photographs, music, electronic

greeting cards, ‘canned’ software . . ., entertainment properties (e.g., films, concerts, books, and

television and radio programs), and all other digitized products delivered as described above are

not taxable, except the exclusion does not repeal by implication the tax on the service of

providing pay television.” Id. (emphasis added).

D. The Sale of Prime is Subject to Iowa Sales and Use Tax.

Under the facts found by the Department, Prime is a bundle of goods, services, and other

benefits, each distinct and identifiable, sold for one nonitemized price. Accordingly, a Prime

Membership is taxable as a bundled transaction if at least one of the individual Prime benefits

would be a taxable item when sold separately. See Iowa Code § 423.2(8)(a) (2015). The

Department concludes that the sale of Prime Video is taxable. Therefore, the Department holds

that the sale of Prime is subject to Iowa sales and use tax. Furthermore, Petitioner’s sale of

Prime Video, purchased apart from the general Prime Membership, is also subject to Iowa sales

and use tax.

Iowa imposes sales tax on the service of “pay television.” Iowa Code § 423.2(6)(a).

“Pay television” means “distributing the signals of one or more television broadcasting stations,

or other television programming to subscribers, and using any transmission path.” Iowa

Admin. Code r. 701—26.56 (2016) (emphasis added). Iowa first imposed sales tax upon “pay

television” service in 1990. 1990 Iowa Acts, 73d G.A. ch. 1232, § 13. This enactment predated

Prime Video and the wide availability of the internet. However, the Iowa Supreme Court, when

reviewing the application of law, including laws of taxation, has “interpreted statutes in a

common-sense manner rather than assuming the legislation intended to capture only

technologies that existed when the law was enacted.” Kay-Decker v. Iowa State Bd. of Tax

Review, 857 N.W.2d 216, 225 (Iowa 2014).

Prime Video is a subscription-based service that allows subscribers to view thousands of

television programs and movies either by streaming on-demand or by downloading content for

later viewing. A subscriber can access Prime Video on a television equipped with proper

hardware (including Amazon’s Fire TV device), a computer, or other compatible device. Even

if the content is downloaded for later viewing, the subscriber loses access to the content upon

termination of the Membership. As described in more detail above, the available television

shows include original Amazon television programs and television programs from traditional

television networks. These available television programs are often similar—or even identical—

to standard television programs. In addition to the standard subscription, Prime Video content,

Members can subscribe to several additional premium channels, including HBO, Showtime, and

Starz, for an additional fee.

Based on these facts, Prime Video service fits within the common-sense understanding

of the statutory term “pay television” and the Department rule that defines it. It shares traits

with traditional television services, such as cable and satellite. For example, like traditional

television services, Prime Video programming includes television programs and movies. Prime

Video television programs generally follow the same multi-episodic, multi-season, format of

traditional television services. Prime Video’s television programming is equivalent to

distributing new television programs as well as “reruns” and syndicated programs that were

originally released by other companies. Also like traditional television services, these programs

are available to subscribers for a periodic fee. Furthermore, Amazon’s description and

advertising of much of the Prime Video content as “TV”, along with its use of television rating

systems and traditional television terminology (e.g. episodes, seasons, etc.) for Amazon Original

Series and other included television programming is further evidence Prime Video is “pay

television.” See Kay-Decker v. Iowa State Bd. of Tax Review, 857 N.W.2d at 226 (noting that a

cable company’s reference to VoIP as “phone service” and traditional telephone features such as

caller ID, three-way calling, and voicemail in its marketing to customers was further evidence

VoIP provided over cable lines was comparable to and taxable like telephone lines). Under the

Department’s long-standing administrative rule, the taxability of Prime does not depend on the

Petitioner owning or initiating the internet communication through which the pay television

service is distributed. See Iowa Admin. Code r. 701—26.56 (2016) (taxing pay television that

“us[es] any transmission path”) (emphasis added). Rather, the controlling fact is that Petitioner

sells pay television service in Iowa. Therefore, Prime Video is subject to Iowa sales and use tax

as “pay television” service. See Iowa Code § 423.2(6)(a) (2015); Iowa Admin. Code r. 701—

26.56 (2016); Kay-Decker v. Iowa State Bd. of Tax Review, 857 N.W.2d at 226 (focusing on the

comparability of the service between telephone and VoIP, rather than the specific, technological

method by which the service was provided over a line).

Petitioner also asked whether Prime may be exempt under the general sales tax

exemption for “a sale at retail if the substance of the transaction is delivered to the purchaser

digitally, electronically, or utilizing cable, or by radio waves, microwaves, satellites, or fiber

optics.” Iowa Code § 423.3(67) (2015). As stated in the Department’s rules, despite the fact

that the exemption lists “cable” and “satellites” as delivery methods, Iowa Code section

423.3(67) does not exempt the service of “pay television.” See Iowa Admin. Code r. 701—

231.14 (“[T]he exclusion does not repeal by implication the tax on the service of providing pay

television.”). The Department’s rule is based on the “strong presumption against implied

repeal.” Burton v. Univ. of Iowa Hosp. & Clinics, 566 N.W.2d 182, 189 (Iowa 1997). “The

presumption is even stronger when a repeal is claimed of a special statute by a more general

one.” Id.; see also Goergen v. State Tax Comm’n, 165 N.W.2d 782, 788 (Iowa 1969).

Consistent with the very strong presumption against implied repeal of statutes, the

exemption only applies to certain digitally-delivered property, not pay television or any other

specifically enumerated taxable service. See Iowa Admin. Code r. 701—231.14 (2016) (the rule

specifies that a “taxable ‘sale’ of tangible personal property does not occur if the substance of

the transaction is delivered to the purchaser digitally…”) (emphasis added). The rule on the

digitally-delivered property exemption makes a special point to note that it does not impliedly

repeal the tax on pay television. See id. This has been the Department’s interpretation since the

original inception of the rule. See Iowa Admin. Code r. 701—18.61 (Nov. 15, 2000) (“[T]he

exclusion does not repeal by implication the tax on the service of providing pay television.”

Rule 701—18.61 was moved to 701—231.14 in 2005 but the substance did not change in any

relevant way. Compare Iowa Admin. Code r. 701—18.61 (Nov. 15, 2000) with Iowa Admin.

Code r. 701—231.14 (Jan. 19, 2005)). The Department promulgated this rule pursuant to the

interpretive authority vested by the legislature. See, e.g., Iowa Ag Const. Co., 723 N.W.2d at

172–74. In the sixteen years since the Department first promulgated this rule—harmonizing and

giving meaning to both the general digitally-delivered property exemption and the more

specific, itemized taxable service on pay television—the legislature has made many other

changes to the sales and use tax statutes. These changes include adding numerous other

exemptions to Iowa’s sales and use tax. Despite making numerous other modifications to

Iowa’s sales and use tax and having ample opportunity to clearly repeal the tax on pay television

service, the legislature has not repealed the tax. The legislature has not nullified the

Department’s administrative rule on this issue. See Iowa Const. Art. 3, § 40; Iowa Acts 2016

(86

G.A.) ch. 1128, H.F. 2433, § 6 (rescinding the Department’s published administrative rules

regarding sales and use tax exemptions). It has left the Department’s long-standing

interpretation, pursuant to administrative rule, intact. This fact strengthens the conclusion that

the sales tax on pay television is not affected by Iowa Code section 423.3(67). See City of

Marion, 643 N.W.2d at 207-08 (Iowa 2003) (upholding the Department’s 17-year-old

interpretive rule and noting that the length of the rule and the legislature’s failure to change the

statutory language during that period strengthened the conclusion that the Department’s

interpretation was not erroneous); City of Sioux City v. Iowa Dep’t of Revenue and Finance,

666 N.W.2d at 592 (finding that the legislature’s long-running failure to amend a statute to undo

the Department’s administrative rule amounted to “tacit approval of the department's action”

and noting that the “fact that this administrative rule has been in effect for eleven years strongly

cautions against finding the rule invalid”). Therefore, the specific, itemized service of pay

television is not exempt from Iowa sales tax under general provisions of Iowa Code section

423.3(67). See, e.g., Iowa Code § 4.7 (2015).

Accordingly, Prime Video is subject to Iowa sales and use tax. The inclusion of Prime

Video in a Prime Membership, and the fact that the price of Prime is not itemized among its

various components, causes the Prime Membership to become a taxable bundled transaction.

See Iowa Code § 423.2(8)(a) (2015). Furthermore, the separate sale of Prime Video is also

subject to Iowa sales and use tax.

E. Taxation of the Free One-Month Trial.

Under the facts presented by Petitioner, the free one-month trial of Prime is not subject

to sales tax.

ORDER

THEREFORE, based on the facts presented, foregoing reasoning, and applicable

provisions of the law, the issues raised in the Petition for a Declaratory Order are as answered

above. The Prime Membership, as described in the Petition, is subject to Iowa sales and use tax.

The free, one-month trial Prime Membership, as described in the Petition, is not subject to Iowa

sales and use tax.

Issued in Des Moines, Iowa this ____ day of December, 2016.

IOWA DEPARTMENT OF REVENUE

By______________________________

Courtney M. Kay-Decker, Director

CERTIFICATE OF SERVICE

I certify that on this 4

day of January, 2017, I caused a true and correct copy of the

Declaratory Order of the Director of Revenue to be forwarded by U.S. Mail to the following

person:

Dylan Waits

Senior Manager, State and Local Tax

Amazon Services LLC

2021 7th Ave

Seattle, WA 98121

Served by email with consent of the Petitioner on December 28, 2016.

________________________________

Hollie Welch