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.

Netflix and Amazon users sue to stop Chicago’s 9% streaming tax

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.

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2 Comments | Leave a comment
  1. Maynard says:

    Presumably such a tax would be based upon the billing address, because the actual delivery address of digital data can be elusive. If that’s the case, then I can imagine a lucrative business for out-of-town mail drop operators. I’ve got a streaming Netflix account, and I don’t think Netflix even has my real address.

    Of course, such evasions can be countered by ever-more oversights and controls, just to make sure it’s possible for third parties to monitor your every movement and transaction. Consider, for example, that if you stream the data to your cell phone, your phone will need to submit continuous GPS location reports; it’s possible you’ll move from one jurisdiction to another in the middle of a movie, in which case the revenue must be split. (And the recent proposals of per-mile taxes for vehicles presents similar problems.)

    Bottom line is that the status quo is unsustainable, and our governing authorities must choose between going full totalitarian and leaving people the hell alone. For the mandarins and their armies of bureaucrats, that choice is a no-brainer.

  2. Vintageport says:

    But but but Maynard, how else can the blood be cleansed from the river?

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