Chicago finds new tax stream: Netflix, Spotify, online gambling

Unfortunate for residents of Chicago, the city’s amusement tax will be extended to streaming entertainment services like Netflix, Spotify, Hulu or Apple Music. It’s a puzzling tax, cutting against numerous basic assumptions of the web, but the broader implications could be even more unsettling. While streaming services have been largely exempt from these tax laws because customers don’t purchase content, this new tax applied by the city for streaming services is unprecedented.

The ruling targets “electronically delivered amusements”.

To be clear, the “Amusement Tax Ruling” applies to a number of digital services, including Netflix. The first involves “electronically delivered amusements” while the second relates to “nonpossessory computer leases”. Hence, server time worth $100 would now be charged at $109 if you happen to be in Chicago. Here are the 50 communities with the lowest property tax bills. “Jurisdictions around the world, including the U.S, are trying to figure out ways to tax online services”. Given the ease with which some Netflix users have avoided geographic restrictions, it will be interesting to see how successful service providers are at identifying who owes the tax and collecting it from them, particularly in the case of businesses with multiple locations.

New changes to tax law in the city of Chicago have effectively raised the prices of online streaming and cloud services in the Windy City, beginning on Wednesday. With that loss comes a loss in tax revenue, and now, one particular city wants to take the money back that they are losing.

Nonetheless, there are strong arguments that both rulings run afoul of provisions in the Federal Telecommunications Act, the Internet Tax Freedom Act, and federal and Illinois constitutional limits on taxation.

“I could do that same activity of research using books or periodicals without being taxed”. Both are extensions of existing laws that add an extra 9 percent tax on certain online services.

Chicago residents who prefer to download their music rather than stream it, on the other hand, are in luck: the change to the tax law doesn’t apply to them.

In addition, Chicago is facing a massive budget shortfall largely due to school district pension payments.

Still, the net result for cloud services and customers alike is a confusing hodgepodge.

City officials claim, somewhat absurdly, that the ruling isn’t an expansion of the taxes.