Chicago officials have found a way to tax “the cloud.”
Digital media companies and Chicagoans will now be slapped with a 9 percent “cloud tax” on streaming services, including popular entertainment outlets such as Netflix, through which city officials aim to generate $12 million. Collections will begin Sept. 1.
According to the Chicago Sun-Times, the city sees part of its “cloud tax” as an extension of its longstanding “amusement tax” — a kind of levy that many cities and other taxing jurisdictions collect. Amusement taxes typically target theater or concert tickets and live sporting events, but Chicago apparently would be among the first cities — and certainly the biggest — to rule that “digital entertainment” enjoyed in the home is covered.
“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,” mayoral spokeswoman Elizabeth Langsdorf said in a statement.
Companies are already working to shift costs imposed by the “cloud tax” onto consumers. The entertainment website The Verge reported Wednesday that Netflix has already begun making arrangements to add the tax to the cost charged to its Chicago customers.
The Verge reported that the new taxes came about as a result of two rulings by Chicago’s Department of Finance. One ruling covers “electronically delivered amusements” including “any paid television programming,” and the other refers to “nonpossessory computer leases.”
That lease tax will affect cloud computing, financial products and other databases.
Critics called the tax just the latest example of money-hungry governments looking to expand their tax power.
“We’re definitely opposed to a 9 percent additional tax, and this kind of just goes back to what we’ve been seeing recently with the ongoing pension crisis. The city is looking to expand the tax base in any way, even if that means pushing out more Chicagoans over time,” said Jared Labell of the Illinois nonprofit organization Taxpayers United of America, according to the Sun-Times.
Mr. Labell criticized the city “using laws that are nearly 20 years old” to raise revenue, and said that if the city needs to raise taxes, it should do so through the usual democratic process of passing an ordinance to tax certain businesses rather than having the city bureaucracy redefine the terms of old laws.
“The presumption is that it’s the city’s money first, and so if technology changes in any way, we need to recover that tax base instead of trying to push forward making cuts in other places,” he said.