Los Gatos Retains Netflix Sales Tax

Los Gatos will continue to receive all of the sales taxes generated from Netflix DVD subscriptions in California, town officials announced Friday.

Such loss of revenue had been forecasted when the company announced in July of last year that it was moving its DVD-by-mail rental division to San Jose.

However, on Friday, the City of San Jose released a memo on the status of the Netflix sales tax agreement officials there had hoped to finalize, but which they later learned would be void since the company never created a separate DVD entity.

The memo advised members of the San Jose City Council that it won't be receiving sales tax associated with the Netflix DVD operation, chiefly because the company didn't establish "Quikster" and also because some key functions for the DVD division will remain at the Los Gatos headquarters. The Qwikster idea was abandoned last October.

As a result, Netflix will not be signing a sales tax participation agreement that the San Jose City Council had authorized in August of 2011.

"We remain very pleased to welcome Netflix employees to San Jose," said Kim Walesh, director of economic development and chief strategist for the City of San Jose, in the memo.

More than 80 employees, mostly engineers, are working out of a San Jose building located at 1732 No. 1st St.

Walesh said San Jose has not expected any funds on the Netflix project and the potential Netflix sales tax revenue has not been included in city budget projections.

Los Gatos Town Manager Greg Larson said the increased revenue would reduce the town's $4 million budget shortfall challenge for the 2012-13 fiscal year by $1.5 million, or more. 

"This change is a result of town discussions with Netflix following their decision to keep the DVD business unit part of Netflix,” Larson said.

Netflix is the town’s biggest source of sales tax revenue generating more than $3 million a year to town coffers.

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