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Binge watching your favorite Netflix shows in bed just got a little more expensive thanks to two rulings by the Chicago Department of Finance.
The rulings, which take effect today but don’t actually have to be implemented by streaming services until September 1st, 2015, will apply a 9% amusement tax, or “cloud tax,” for any shows, movies, videos, games or music you stream on services like Netflix and Spotify.
According to the Amusement Tax Ruling 5, “The amusement tax does not apply to sales of shows, movies, videos, music or games (normally accomplished by a “permanent” download). It applies only to rentals (normally accomplished by streaming or a “temporary” download). The charges paid for such rentals may be subscription fees, per-event fees or otherwise.”
According to The Verge, Netflix is already planning to add the tax to the cost charged to its Chicago subscribers. “Jurisdictions around the world, including the US, are trying to figure out ways to tax online services,” a Netflix representative told The Verge. “This is one approach.”
Only the first ruling impacts streaming services. The second ruling impacts the “Personal Property Lease Transaction Tax Ruling 12” and pertains to “nonpossessory computer leases” — remote databases and servers. This would affect services like Amazon Web Services and Lexis Nexis.
Lawyers in Chicago are doubting the rulings’ legality. The law firm Reed Smith LLP argued that the taxes may violate the Federal Telecommunications Act and the Internet Tax Freedom Act.
This is the city’s latest attempt to combat diminishing tax revenue from traditional, brick-and-mortar stores. It’s admittedly hard not to look at this and see it as a way to reach into Chicagoans’ pockets without being noticed (or raising property or sales taxes).
With that said, the city has also been committed in recent years to advancing Chicago’s Internet infrastructure, with no way to directly impose a tax to help pay for these improvements. Outside of this and the state’s Internet sales tax, Chicago does not currently have an “Internet tax.” In fact, the 1998 Internet Tax Freedom Act bars governments from taxing Internet access, making an “Internet tax” illegal. It’s difficult to know how this will affect these new rulings.
Will this “cloud tax” stick around? Only time will tell…