On July 1 of this year Chicago implemented a 9% tax for every use of streaming and cloud services such as Netflix. The tax is on consumers but effectively collected by the companies providing the service.
The city claims it isn’t a new tax but rather an interpretation of the existing amusement and property lease taxes.
A group of Chicago residents have initiated a court challenge to the tax. They argue the amusement tax applied to streaming service is actually a new tax and needed to be voted on by city officials. The lawsuit also claims the tax violates the federal Internet Tax Freedom Act.
Chicago’s move portends a nightmare of separate municipalities imposing similar taxes. The tax is expected to add $12 million annually to Chicago’s tax receipts.
In a claim that may have national significance, the lawsuit also says the Chicago streaming tax violates the federal Internet Tax Freedom Act, which forbids states and cities from imposing discriminatory internet-only taxes. Specifically, the Chicago subscribers claim the tax is illegal because it treats streaming differently from DVD-by-mail services and also imposes a higher rate than various live forms of entertainment.
The city says it will fight the lawsuit vigorously, according to the Chicago Tribune, which also reports the so-called “Netflix tax” is expected to bring in $12 million annually, and that it is part of a larger attempt by Mayor Rahm Emmanuel to use new fees to close a budget hole.
Dark clouds ahead.