Lawsuit Seeks To Block Chicago’s “Netflix Tax”

CHICAGO (CBS) — The Emanuel administration has been hit with a lawsuit over a June decision to expand its taxing authority to Internet streaming services.

Jeffrey Schwab, an attorney with the non-profit Liberty Justice Center, said he has filed suit on behalf of clients who subscribe to online streaming services like Netflix, Hulu, and Amazon Prime, after the city extended its 9 percent amusement tax to paid subscriptions for streaming videos, music, and games. Such companies were required to begin paying the tax on Sept. 1. Netflix already has said it will pass on the tax to customers in Chicago, and other streaming services likely will follow the video service’s lead.

While the city has defended the June decision to extend the reach of the amusement tax as a valid use of existing law to apply the city’s tax code to amusements fairly and uniformly, Schwab said the tax on streamed digital services is a new tax.

“It is not provided for in the text of the ordinance, and the comptroller who issued the ruling does not have the authority under the ordinance to interpret the ordinance to cover those services,” he said.

Schwab said the Finance Department exceeded its authority, and said taxing such services should have gone before the City Council for a vote.

“The city cannot implement a tax on those things without passing an ordinance, and the city didn’t pass an ordinance here. It just interpreted the language in the existing amusement tax code to apply to services that they’ve never applied this tax to before,” he said.

A spokesman for the city’s Law Department said the administration has not yet seen the complaint, but they’re confident the Finance Department’s ruling was a valid application of the existing amusement tax, and the city has every intention of vigorously opposing the lawsuit.

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