Ever since the city of Chicago began taxing streaming and cloud services in July, I have wondered if it was legal.
It isn t, argue Chicago users of services such as Amazon Prime, Netflix, Hulu, XBox Live and Spotify. They filed a lawsuit to fight the city s 9 percent amusement levy, Fortune writes.
The Chicago residents say the city comptroller s decision to extend the tax, which has been imposed on live shows and baseball games, amounted to a new tax that only voters could approve, Fortune writes.
The tax, they argue, also violates the federal Internet Tax Freedom Act, which prohibits governments from singling out Internet services for taxes that aren t paid for equivalent non-digital products and services. It s not fair or legal that you pay the tax for streaming a movie on Netflix but not for the DVD, they argue.
The city, which expects $12 million annually from the tax, says it will fight the legal challenge.
It makes sense that cities and counties would look to Internet services as sales tax revenue continues to decline.
But for decades those efforts have been stymied. First, there is the requirement that there be a physical nexus for a local tax to be imposed (they have employees, warehouses, etc.), as Fortune points out. Increasingly, local governments are looking to push the definition of what constitutes physical nexus.
Also, there is political risk for elected officials who push these taxes — you are asking residents to pay more for their entertainment. But Chicago Mayor Rahm Emanuel appears to be willing to endure the slings and arrows. He is also looking to increase property tax and a fee on single family homeowners for garbage pickup.
Above: The Netflix logo on a handheld device. (AP Photo/Elise Amendola, File)
