There used to be a whole world of brick-and-mortar retail stores and transactions a city could gather some sales tax from and build into a revenue stream. As more and more goods instead become online services, though, those streams have dried up. Now one city wants to go back to gathering its cash… from your transactions in the cloud.
The Verge reports that residents of the Windy City are about to have to start paying a premium on Netflix and their other streaming services, as a new “cloud tax” takes effect in Chicago today.
The logic goes something like this: In the long-gone ancient era of “twenty whole years ago,” when you went down to your corner video store for some rentals and some popcorn, you’d leave a few cents of sales tax behind with your purchase. Those nickels and pennies added up, and your town, city, or county got some revenue out of it.
But now, you’re streaming all your media, not buying it, and as a result there’s no sales tax going anywhere. Worse: record stores, video stores, and bookstores are in large part going the way of the dodo, and cities can’t collect business or property taxes on businesses that don’t exist. So this, then, is Chicago’s attempt to recoup some of those losses.
As The Verge explains, the new tax is actually a pair of rules put together. One covers “electronically delivered amusements” and the other, “nonpossessory computer leases.” The former targets your streaming video and radio sites, and the latter is meant to cover remote computing platforms like Amazon Web Services.
The rules take existing tax law and extend them to add another 9% onto the cost of using those services from a Chicago address — so that $8.99 Netflix subscription is $9.80 for an unfortunate Chicagoan.
The web services businesses, of course, can avoid this tax entirely (and probably get lower rents) by moving out of the city limits entirely. Consumers subscribing to streaming services have fewer ways out, since the tax could be based both on their billing address and also on the IP addresses to which content is streamed.
At least one lawyer is already arguing that Chicago’s new rules violate federal statutes, including the Communications Act and the Internet Tax Freedom Act. For the time being, however, the rules are in place and Chicagoans must pay.