Chicago Over-Taxing Amazon, Netflix, Spotify, Hulu, Xbox Live and Other Online and Streaming Services? Not So Fast!

In June, the city of Chicago’s Finance Department issued an administrative ruling that applied the city’s 9 percent “Amusement Tax” to streaming video (Netflix, e.g.), gaming (Xbox Live, e.g.), and audio (Spotify, e.g.). The tax applies to anyone subscribing to these types of services whose credit card billing address is listed in Chicago, irrespective of whether the subscriber actually uses the account within the city.

Thankfully, a group of Chicago residents, ably represented by a highly talented team at the Liberty Justice Center, filed a lawsuit in the Cook County Circuit Court last week against the City of Chicago and the city’s Comptroller seeking declaratory and injunctive relief. A link to the complaint is here.  

The Plaintiffs’ complaint alleges the Comptroller’s ruling exceeds his authority because the Municipal Code “does not … authorize [him] to impose new taxes that the City Council has not authorized through a city ordinance.” If Chicago wants to raise taxes on streaming services, the City Council, not the Comptroller, should make that decision.

In addition, the complaint alleges the Comptroller’s ruling violates the Internet Tax Freedom Act (ITFA), a federal statute that prohibits state and local governments from, to quote the Plaintiffs, “impos[ing] multiple or discriminatory taxes on electronic commerce.”As the complaint suggests, the Comptroller’s Amusement Tax applies to Netflix’s video streaming services, but not their video mailing services. Simply put, upholding the ability of local bureaucrats to chip away at the nondiscriminatory clause of ITFA presents profound and far reaching consequences for numerous industries. It cannot go unchallenged.

National Taxpayers Union will closely monitor this litigation as it unfolds. We would encourage the Chicago City Council to overturn the Comptroller’s decision so Windy City residents can enjoy streaming services without interference from money-hungry bureaucrats.  Then, local officials should get to work on across-the-board reductions of taxes on everything from sewer service to cable TV and wireless phones. Chicagoans need relief, not rhetoric.