Chicago implements cloud tax for online services

Consumers in the Windy City will be hit with a nine percent price increase as Chicago's new law affects streaming services like Netflix and Spotify. 

Melanie Stetson Freeman/The Christian Science Monitor
The city of Chicago is enforcing a new tax on cloud services.

Chicago introduced a tax on cloud services Wednesday that will see forms of streaming entertainment get more expensive.

The cloud tax will impose a nine percent tariff on “electronically delivered amusements” such as streaming video, streaming music, satellite TV, and online gaming subscriptions delivered to customers located in Chicago.

According to the Verge, the city’s new tax is made up of two rulings made by the city's Department of Finance: one covering "electronically delivered amusements" and another covering "nonpossessory computer leases." Each one takes an existing tax law and extends it to levy the new tax on certain types of online services.

The cloud tax is separate from a sales tax which online content distributors already charge in many states as required by law.

The explanation behind this tax is that online services are eliminating the need for brick-and-mortar video-rental shops and music stores, which would have been paying Chicago property taxes.

A spokesperson for Netflix, the online movie and television program streaming service, told The Verge that the company is already making arrangements to add the tax to the bills of its Chicago subscribers.

Some, however, are already up in arms against the city’s move. Lawyers at the firm of ReedSmith argued the tax violates both the Federal Telecommunications Act and, in the case of the second ruling, 1998's Internet Tax Freedom Act, intended to prevent discrimination against services delivered over the internet.

"I could do that same activity of research using books or periodicals without being taxed. So it does seem like I'm being picked on because I chose to do it online," attorney Michael Wynne told The Verge.

Chicago officials are taking an aggressive tax approach to confront a pension budget crisis and this new move is anticipated to help make up for the shortfall.

Other cities around the world, including some in the US, are trying to tax the cloud and a nationwide rollout of cloud taxes could follow suit as local and regional tax authorities try to cash in on online services.

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