This week the City of Chicago amended its amusement tax rules among others to include a 9% “cloud tax” on digital entertainment streaming services. Taking effect September 1, it will include everything from rentals of shows, movies, videos, music and games to e-commerce transactions to online gambling. That of course means services like movie and TV hub Netflix and music services like Spotify will be officially taxed inside the Windy City’s limits. The city would collect 9% of these services’ monthly fees (read the full ruling here), with the new taxes expected to net $12 million a year, according to the Chicago Sun-Times.
Most cities already levy taxes on entertainment like attending plays, movies, concerts and sporting events (and don’t forget cigarettes and booze). Chicago is now the first city to apply this to digital services in a long-ago started philosophical debate over how to level the field on which digital and traditional businesses play. (For example, a movie theater whose ticket prices include a city tax is a more expensive proposition than staying home and watching a movie online that is not taxed. Fair or not? Discuss.) Another way to do it: Amazon, for example, adds New York and California sales tax to purchases made within those respective states.
Here’s the language in this week’s ruling:
2. Code Section 4-156-010 states, in pertinent part: “Amusement” means: (1) any exhibition, performance, presentation of a show for entertainment purposes, including, but not limited to, any theatrical, dramatic, musical or spectacular performance, promotional show, motion picture show, flower, poultry or animal show, animal act, circus, rodeo, athletic contest, sport, game or similar exhibition such as boxing, wrestling, skating, dancing, swimming, racing, or riding on animals or vehicles, baseball, basketball, softball, football, tennis, golf, hockey, track and field games, bowling or billiard or pool games; (2) any entertainment or recreational activity offered for public participation or on a membership or other basis including, but not limited to, carnivals, amusement park rides and games, bowling, billiards and pool games, dancing, tennis, racquetball, swimming, weightlifting, bodybuilding or similar activities; or (3) any paid television programming, whether transmitted by wire, cable, fibex optics, laser, microwave, radio, satellite or similar means. (emphasis added).
The move comes as Moody’s Investors Service last month cut its rating on Chicago’s debt to junk, to Ba1 from Baa2, citing expected increases in unfunded pension burdens based on an earlier Illinois Supreme Court decision on state pensions.
For its part, Netflix was mostly mum on the subject this week, telling outlets who asked: “Jurisdictions around the world, including the U.S., are trying to figure out ways to tax online services. This is one approach.” It isn’t expected to impact Netflix’s stock price, but it is expected to send some shivers users’ way in both Chicago and beyond.