Chicago’s ‘Netflix tax’ revenues more than triple in five years

Chicago’s ‘Netflix tax’ revenues more than triple in five years

In 2017, Chicagoans paid $40 million in taxes on cloud computing and streaming services. It was $150 million this past fiscal year.

COVID-19 hurt most tax revenue streams for Chicago, but all those people trying to work from home or binge-watching video streams during the pandemic gave city coffers a big boost because the city taxes those services.

Revenue generated from Chicago’s “cloud tax” quadrupled during the past five years, raising nearly $120 million from residents in fiscal year 2021 according to a Bloomberg Tax analysis of city Office of Budget and Management data.

The report further showed the city’s “Netflix tax” more than tripled during that time as Chicagoans ramped up subscriptions to streaming services for movies, music and games. The city collected more than $30 million under the expanded “amusement tax” this year.

A Chicagoan’s Netflix bill would be $16.12 for a standard $13.99 subscription with the 9% amusement tax and a 6.25% statewide sales tax tacked on.

Despite Chicago collecting lower-than-projected revenues on its traditional portfolio of business, hotel, restaurant, recreation, phone and utility taxes because of pandemic closures, the digital service taxes have continued to see exponential growth. That is partly because the rates have increased and the city has been aggressively going after the services and customers.

The introduction of city’s “cloud tax” and “Netflix tax” began in 2015 with the reinterpretation of two long-standing tax programs by the Chicago Department of Finance.

The city expanded a tax originally reserved for automobiles, business equipment and other leased items to include cloud computing. The ordinance imposed a 5.25% tax in 2016 and was increased to 9% in 2021 as the city searched for more tax dollars.

The city also changed its amusement tax in 2015, extending the city’s 9% levy on tickets for recreational activities and concerts to “amusements that are delivered electronically.”

The city has seen combined revenues collected from the digital service taxes soar from $39.9 million in 2017, the first full year of service, to $148.4 million in fiscal year 2021, which ended July 1.

These rapidly growing rates have renewed controversy surrounding the “Netflix tax” rulings that has been embroiled in litigation since passing.

The Liberty Justice Center challenged the expanded policy on behalf of Chicagoans and other groups in 2015, arguing the tax breaks with federal laws passed in the 1998 Internet Tax Freedom Act. The Illinois Supreme Court declined to review an appeals court ruling in favor of the city program.

The city was also sued by Sony Interactive Entertainment LLC and Apple Inc. in separate challenges in Cook County Circuit Court. Sony gave up its legal action, but Apple’s case continues.

A hearing on Chicago’s petition to dismiss Apple’s lawsuit is slated for December.

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