The city levies 9% amusement tax on streaming services like Netflix, Spotify, Hulu and more
Mobile commerce, including content streaming platforms, have quickly moved from novelty to ubiquity; as traditional tax revenue streams move from stores into the ether, some governments are taking out-of-the-box approaches to balance the books.
Consider what’s happening in Chicago: in July the city expanded the purview of an existing 9% “amusement” tax to include software-as-a-service, platform-as-a-service and streaming media services like Netflix, Spotify, Hulu and the like.
At the time, attorneys with ReedSmith wrote in a blog that the “rulings are staggering in their breadth. … 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. In addition, the rulings gloss over many details of applicable federal law and how telecommunications and computer networks operate, and assume the simplest factual scenarios that do not realistically comport with how many providers and their customers transact business. As a consequence, the time to look at the impact of these rulings is now, before mounting exposure and interest accrual makes challenging these positions economically infeasible.”
That forecasted exposure took shape last week in the form of a challenge by residents in Cook County State Court.
Fortune reports the plaintiffs claim violation of the Internet Tax Freedom Act and that the tax is illegal “because it treats streaming different from DVD-by-mail services and also imposes a higher rate than various live forms of entertainment.”
The new tax could bring in a potential $12 million for badly stretched city of Chicago municipal coffers.
Another tenet of the court filing focuses on whether the new tax can be extended via reinterpretation of the existing amusement levy or voted on and adopted by elected city leaders.
From the document: “The municipal code does not, however, authorize the comptroller to impose new taxes that the City Council has not authorized through a city ordinance. The comptroller may not use his rulemaking power to adopt a rule that is inconsistent with or exceeds specific language in the ordinance that authorizes his rulemaking.”
The group of plaintiffs want the court to declare the amusement tax in violation of overarching federal and further enjoin the applicable officials from enforcing the tax.
