The city of Chicago, as part of a new effort to generate revenue from online sources, began taxing streaming services under a revised “amusement tax” rule that went into effect yesterday.
Residents of the city will see a nine percent tax on their bills for streaming services like Netflix, Spotify, Hulu and more. While the new tax officially began yesterday, companies that use online streaming or databases aren’t required to begin applying the tax to customers until September 1.
The new rule amends an existing amusement tax previously used on entertainment taking place in the city such as movies, concerts and sporting events. The city’s finance department ruled last month that the city could apply the amusement tax to any digital streaming or rental service used in the city regardless of if the source of the content is from the city or if the company operates facilities in the city. The tax will not apply to online purchases of entertainment items.
The move comes in the midst of ongoing attempts by legislators in Illinois to tax online entities. State legislators tried for years to tax online businesses such as Amazon, which sold merchandise to residents of Illinois without being subjected to sales taxes due to a lack of physical locations within the state. While the Illinois Supreme Court declared a 2011 “Main Street Fairness Act,” which taxed online retailers, as unconstitutional, the state passed another law that went into effect in 2015 to tax online retailers. While streaming services have been largely exempt from these tax laws because customers don’t purchase content, this new tax applied by the city for streaming services is unprecedented.
The new tax has some potential issues going forward. Customers who want to avoid the extra tax could set their billing addresses to a home or office outside the city limits, exempting them from the tax. The city would have a potentially difficult time enforcing the laws for individuals who use the service in the city limits, but hold residency somewhere else. Companies whose databases located in the city fall under the tax could avoid it by relocating their servers outside the city limits. And if a business entity or customer located in the city accesses a database from outside the city, the tax application becomes murky.
Elizabeth Langsdorf, a spokeswoman for the city, told Ars Technica that the tax would be applied based on if a user’s billing address is located within the city. She also said the city expects the new tax to bring in $12 million per year.