Chicago slaps PlayStation users with expansion of 9 percent amusement tax

Chicago slaps PlayStation users with expansion of 9 percent amusement tax

PlayStation users will now see an extra 9 percent tax applied to some purchases on the platform.

Sony has agreed to comply with Chicago’s amusement tax, leaving PlayStation users to face an extra 9 percent tax on streaming and rental services, effective Nov. 14. This latest expansion of the city’s amusement tax will apply to purchases such as rentals, but not full sales of games.

The city’s amusement tax used to mostly apply to purchases of concert and sporting event tickets. However, the Chicago Department of Finance ruled in 2015 that the tax covered streaming services such as Netflix, Hulu and Spotify. This expansion of the amusement tax is commonly dubbed the “Netflix tax” or the “cloud tax.” In addition to being regressive, it is also likely illegal.

The Liberty Justice Center, the Illinois Policy Institute’s litigation partner, sued on behalf of online streaming service customers to stop implementation of the tax after its expansion in 2015. The Liberty Justice Center argued that the tax was illegal and unconstitutional under state and federal law. Federal law, namely the 1998 Internet Tax Freedom Act, prohibits states, counties and municipalities from levying taxes that discriminate against electronic commerce.

In Labell v. City of Chicago, a judge in May 2018 ruled in favor of the city, upholding the expansion of the amusement tax. Following the decision, the Liberty Justice Center appealed, and the case is pending before the First District Court of Appeals. Apple Inc. – which is not currently complying with the tax – filed a new legal challenge against the city in August, also on the grounds that the tax violates the Internet Tax Freedom Act.

Jeffrey Schwab, the lead attorney on Labell v. City of Chicago, said, “We think the city doesn’t have the constitutional right to do that. They tax not based on whether or not anyone used it in Chicago, but if they had a billing address in Chicago.”

Lawmakers in Springfield attempted to mimic Chicago in 2017 with a statewide tax on streaming services. State Sen. Toi Hutchinson, D-Chicago Heights, filed an amendment to Senate Bill 9 which would apply a 6.25 percent tax to cable and satellite TV, along with streaming services such as Netflix and Spotify. However, the final version passed through the General Assembly did not include her amendment’s language.

Among the top 15 cities, Chicago takes the top spot in an analysis of taxes and fees. The city’s amusement tax is already unpopular with Chicagoans and its endless expansion continues to increase an already high tax burden. The City Council should take steps to rein in rampant taxation by decreasing the layers of taxation Chicagoans encounter – possibly by putting the expansion of the amusement tax to a vote, rather than accepting a decree from the Department of Finance.

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