Six Chicago residents have asked an Illinois state court to overturn a July ruling by the Chicago Finance Department (CFD) that extends the city’s 9% “amusement” tax to online video and music streaming services and to Internet gaming services. Local subscribers to Netflix, Hulu and other online streaming services are impacted by the tax ruling, which went into effect on September 1 and which analysts estimate will add as much as $12 million annually to the Chicago city coffers. Filed with the Cook County Court on September 9, the lawsuit contends that the tax ruling violates the Internet Tax Freedom Act (ITFA) and exceeds CFD mandates.
Specifically, the lawsuit claims that the CFD violated the IFTA by imposing “an unlawful discriminatory tax on electronic commerce” which “applies to Netflix’s video streaming service but does not apply to Netflix’s video-by-mail service.” The plaintiffs also charge that the ruling is discriminatory in that it “imposes a higher tax rate on theatrical, musical, and cultural performances that are delivered through an online streaming service than it imposes on those same performances if they are consumed in person.” Notwithstanding the CFD’s claim that the ruling limits taxation to amusements “within the city,” the petition stresses that the ruling effectively taxes web-based amusements, “which may be provided anywhere, to customers with residency or billing addresses in the City of Chicago who might use those services, partially or entirely, outside of the city.”
Among other things, the lawsuit seeks tax refunds for affected customers and asks the court to enjoin the CFD from enforcing the tax. Defending the CFD ruling as “a valid application of the existing amusement tax,” a Chicago city spokesman told reporters: “we have every intention of vigorously opposing this lawsuit.”