In June the Chicago Department of Finance issued two rulings expanding the application of the city's Personal Property Lease Transaction Tax to include nonpossessory computer leases (the "Cloud Computing Tax") and broadening the application of the Amusement Tax to electronically delivered amusements. They instituted the Amusement Tax, charging residents 9 percent of their costs when they stream television shows, movies, music, or online games, and the Cloud Computing Tax, also set at 9 percent, for those who use remote platforms.
Both taxes took effect July 1.
As defined, "amusement" includes "any entertainment or recreational activity offered for public participation or on a membership or other basis," and "any paid television programming, whether transmitted by wire, cable, fiber optics, laser, microwave, radio, satellite or similar means." Specific amusements that are subject to the tax include "participating in games, online or otherwise," "listening to electronically delivered music," and "watching electronically delivered television shows, movies, or videos."
Bundled transactions will be taxed unless "clearly proven" that at least half of the price is not for the amusement. Online companies are not obligated to collect the tax.
"Jurisdictions around the world, including the U.S., are trying to figure out ways to tax online services," a representative from Netflix told The Verge. "This is one approach."
To read the Department's Personal Property Lease Transaction Tax ruling, click here.
To read the Department's Amusement Tax ruling, click here.
Why it matters: Since the rise of the Internet, jurisdictions have struggled with how to tax online business. Multiple states and municipalities have tried the so-called "Amazon tax" in their attempt to tax online entities. But the measures proved highly controversial and resulted in litigation across the country. The Illinois Supreme Court struck down the state's Tax Freedom Act in 2013, for example, although New York's highest court let the state's tax stand. Given that lawsuits followed the enactment of any "Amazon tax," a legal challenge to Chicago's new laws seems inevitable. However, if the taxes survive judicial review, copycat laws are likely to pop up across the country.