Chicago Residents Now Stuck With A New 9% “Cloud Tax” On Netflix And Other Streaming Services

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.

Chicago’s ‘cloud tax’ makes Netflix and other streaming services more expensive [The Verge]

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  1. webalias says:

    So how is Chicago going to enforce this tax on Netflix customers? It’s pretty easy to disguise one’s IP address via a VPN or proxy package, and some are free. Netflix also provides a variety of means to sign up and pay for an account that don’t involve your bank or credit card — via a gift card, for example. All you’ll need is an email address, and Netflix will ask for your zip code, but any valid US zip code will probably do.

    If one doesn’t wish to go through any of these steps, a lot of Chicagoans could probably share a Netflix account with a relative who lives outside the city — without necessarily violating Netflix’s rather liberal terms of use. The downside of this law is that it might encourage more people to share their Netflix accounts and passwords in ways that go beyond the spirit or intent of Netflix’s policies. I’m not suggesting that anyone try to skirt the law. But this law seems particularly ill-conceived. And there’s a good argument that it does violate the Internet Tax Freedom Act.

  2. strictures says:

    There’s little doubt that the courts will throw out this law because it will be taxing people who use streaming services while traveling outside of Chicago.
    If someone who lives in the city & is taxed, but uses the streaming service only while traveling, the city is taxing something that’s never used in the city.
    Bye, bye tax. Find another way to screw the Chicago taxpayers Rahm. I’ll just have my sister in the burbs sign up, I’ll use that login & I’ll pay her back, so no tax!

    • Xenotaku says:

      I’m also concerned about the part about charging based on IP address. I don’t know about the Chicago area, but at least where I’m at, my IP address can ID me as being all over the region, or even sometimes outside the US, and it’s a simple dynamic IP randomly assigned by my ISP. If it’s similar, and someone’s ISP is based out of Chicago, they could have a “Chicago” IP address without even living within the city.