Hat tip to the Loveland Reporter-Herald for profiling an obscure tax issue that eventually could find its way onto just about every TV screen in Colorado: the city of Loveland’s attempt to assess local sales tax on internet streaming behemoth Netflix.

An audit last year by City Hall in the northern Front Range burg revealed Netflix hadn’t collected from its Loveland customers – or remitted to the city – some $85,000 in sales tax during the previous three years. After accounting for penalties and interest, Loveland handed the entertainment giant a tab for $116,508.22. Netflix doubtless could sneeze and more than that paltry sum would come out – but it balked at the bill on principle.

According to the Reporter-Herald’s Julia Rentsch, Netflix filed a complaint with the city challenging the tax bill. The complaint contends both city and state law exempt the streaming service from taxation as it doesn’t constitute, “sales of tangible personal property that are also subject to the Colorado sales tax.” The complaint states in part:

“Netflix provides a service that begins when Netflix sources entertainment content from movies and television studios, and continues as Netflix optimizes that content for viewing, creates unique and personalized interfaces for every single subscriber, and provides a seamless viewing experience … Therefore, the Streaming Service constitutes a nontaxable service under the City Code and Colorado law.”

Just last week, the city backed down, but the issue might not go away. In fact, the city wants to punt it to the state:

On Thursday, the city rescinded the tax assessment and dismissed the complaint, but it says it wants the state to decide whether Colorado cities may tax online streaming service subscriptions going forward.

This whole issue, it should be noted, is distinct from the years-long grudge match between state governments and e-commerce retailers like Amazon over the assessment of sales taxes on goods sold online.