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Chicago Will Now Tax Netflix, Spotify

Chicago Will Now Tax Netflix, Spotify

When the FCC voted to keep the net neutral back in February, we all rejoiced at the idea of broadband internet being a public utility rather than something cable and internet companies could charge more for depending on the site and/or area it’s being used. One of the big names that kept popping up in that case was Netflix, and the defenders of Net Neutrality said that if providers could charge what they wanted, people would have to pay extra for faster speeds to watch streaming video on the site. That ended up not happening, of course, but that doesn’t mean the movie and TV service will remain the same price to everyone.

The City of Chicago is implementing a 9% tax on online entertainment like Netflix and Spotify, as well as on businesses who use everything from real estate resources to court databases. This falls under two already-existing tax laws in Chicago — the city’s amusement tax and personal property lease transaction tax — both of which already have that lovely 9% fee. While we don’t much know about the second of those statutes, the amusement tax and its effect on subscription-based sites will be huge for those in our area of expertise.

Right now, Chicago’s amusement tax has been reserved for things like sporting events and concerts, but with the new definition, this will include things people do in the comfort of their own home as well, if they pay to have those services streamed in.

There’s a lot more information pertaining to this, and we would urge you to read the Chicago Tribune‘s whole article on it and what it will mean, but ultimately this is a municipality claiming taxes not on the internet itself, but on things one pays for on the internet and uses within those city limits. This is not entirely a new thing; here in California, the state has mandated that Amazon must charge a sales tax on items purchased and shipped to California.

Our own Perry Michael Simon, who is a very smart fellow, weighed in on whether this taxing of streaming services is legal, and what it could mean for other cities and states:

The basis is essentially an extension of a sales tax on amusements to online-delivered entities, and I would think that while unfair and unfairly burdensome (Netflix would, for example, conceivably have to keep track of, and collect and disburse for, a zillion different towns with different rates, which could be done but would be a total pain in the ass), it would be legal.

I’m guessing that we’ll see more of this, because cities do not like to pass up opportunities to get into residents’ paychecks, and because online retailing has eroded the sales tax base to alarming levels (and given the choice between reining in spending and increasing taxes… well, you know). Keeping track of it is a huge challenge, and so is collecting (Chicago hasn’t been clear on whether they’re going to go after the consumers or the vendors for collection). But it’s revenue, so municipalities will watch how Chicago implements this very carefully. If L.A. doesn’t follow suit, I’ll be surprised.

Where do you stand on this issue? It’s apparently legal, but do you think the use of subscription services on the internet should fall under net neutrality or is it fair game since you’re already paying for it? Let us know in the comments below.

HT: Chicago Tribune

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