Chicago To Start Taxing Netflix, Credit Reports

07.02.2015 | Surge Wire |

Users of streaming online services like Netflix and Spotify must now fork over 9 percent extra to the cash-strapped City of Chicago under new tax rules that took effect Wednesday.

The new taxes were authorized last month by the city’s Department of Finance as part of a ruling expanding the reach of two taxes—the amusement tax and the personal property lease transaction tax—to cover online products and services, according to The Chicago Tribune.

City officials say the new taxes did not require legislative approval because they are simply a re-interpretation of existing law. (RELATED: Is the Tax Man After Netflix?)

“In an environment in which technologies and emerging industries evolve quickly, the City periodically issues rulings that clarify the application of existing laws to these technologies and industries,” explained Elizabeth Langsdorf, a spokeswoman for Democratic Mayor Rahm Emanuel, in a statement Wednesday. “These two rulings are consistent with the City’s current tax laws and are not an expansion of the laws.”

The amusement tax, for instance, “applies to charges paid for the privilege to witness, view, or participate in an amusement.” Previously, the tax had applied mainly to events witnessed in person, such as concerts or sporting events, but the Finance Department broadened the definition to include amusements that are delivered electronically, as well.

One notable exception is that “the amusement tax does not apply to sales of shows, movies, videos, music, or games,” but only to rentals, a category that includes subscription services. (RELATED: Pro-Net Neutrality FCC Commissioner Calls Out Netflix for Building ‘Fast Lanes’ of its Own)

The Department made similar changes to the personal property lease transaction tax, expanding the definition to include digital as well as physical property. Among the transactions that are now subject to the tax are real estate databases, cloud computing services, consumer credit reports, job listings, and more or less any other information provided electronically for a fee.

Chicago expects to generate about $12 million in new revenue annually from the changes, though that will hardly make a dent in the city’s nearly-$300 million budget deficit.

And while the taxes will be levied according to the customer’s location, responsibility for collecting them falls on sellers, who are required to remit the proceeds on a monthly basis. (RELATED: Message to Netflix: You Didn’t Build That!)

Anne Marie Squeo, a Netflix spokeswoman, told Ars Technica that the company will comply with the new rules by adding the 9 percent amusement tax to customers’ bills, but seemed to seemed to imply that the decision was born of resignation rather than enthusiasm.

“Jurisdictions around the world, including the US, are trying to figure out ways to tax online services,” she said. “This is one approach.”

Technically, the rules do not require companies to begin collecting the new taxes until Sept. 1, so as to give them time to make any necessary adjustments, but Chicago is graciously allowing them to begin collection sooner than that, should they so desire.

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