Chicago slaps 9% ‘cloud tax’ on streaming services like Netflix. Clients sue

Chicago slaps 9% ‘cloud tax’ on streaming services like Netflix. Clients sue

Streaming is big business, and Chicago wants a piece of the action. On Sept. 1,the city’s controversial new “cloud tax” went into effect, extending a 9-percent “amusement tax” into the digital realm. Streaming the latest Taylor Swift album and binge-watching House of Cards is about to get a whole lot more expensive in the Windy City.

In addition to its amusement tax, Chicago is extending a different set of taxesfor “nonpossesory computer leases” to cover cloud-based computer services like Amazon Web Services and the research database LexisNexis.

Chicago expects to net $12 million from these endeavors, funds the city says are critical to plug a widening budget gap and make up for tax revenues lost as Internet companies run brick-and-mortar shops out of business.

Some city residents, it seems, don’t buy it. In a lawsuit filed in the Circuit Court of Cook County on Sept. 9, six Chicago residents—all of them subscribers to at least one online streaming or video gaming service—are challenging the tax on streaming content. It is a brewing battle that could set a precedent for other cities eyeing Internet services as potentially boundless new sources of tax revenues.

The case hinges on two arguments. First, the petitioners assert that the Chicago comptroller exceeded his authority by reinterpreting the existing amusements tax to cover streaming media. And second, Chicago’s taxation of Internet-based services violates the federal Internet Tax Freedom Act.

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