[Updated]Chicago Targets The Cloud: New Taxes on Netflix and Amazon

Published: July 2, 2015 12:32 PM /


Money Money Money

Many people are probably aware that the state of Illinois is going through somewhat of a financial crisis at the moment (and being from the state this hits close to home). In that idea, some creative ways to secure income have been introduced over the last several months, and one of them seems to be making its way to the front lines this holiday weekend. In a surprising move, Chicago has introduced new tax rules requiring companies to collect a 9% levy on streaming and cloud services. This includes the popular Netflix and Amazon Web Services, as both of them have become more popular over the last several years. This comes as a result of two rulings made about the city's Amusement Tax as well as the Personal Property Lease Transaction Tax. Michael Wynne indicated within the Fortune article that: "It really comes from doing audits of consumers. Take our law firm. City officials will audit us for a bunch of taxes, and may find online services". At that point, the levy would be applied, and the revenue would be taken.

The cloud is definitely the target of the new Chicago Tax.
The cloud is definitely the target of the new Chicago Tax.

The ruling is specific to streaming services, so services like Steam for example are not effected as the item in question is permanently downloaded locally. However, both of the new interpretations of the laws do have significant outcomes in terms of online retail and services. For example, the Lease Transaction Tax will apply to “word processing, calculations, data processing, tax preparation and other applications available to a customer through access to a provider’s computer and its software.” (Source: Reed Smith).  This is a tax specifically placed on the consumer, however it will be the businesses that are audited by it. Now, while the ruling went into place on July 1st, the rulings enforcement seems to start on September 1st, 2015 to give businesses the appropriate time to adjust to the new tax in question and adjust their prices accordingly. It implies that specifically it will apply to those customers who use a billing address within the Chicago area, and this is regardless of whether or not the business is focused with the confines of the city. However, Chicago businesses will be hit regardless for any services that they purchase with cloud based services.

Companies like Netflix are hitting more and more obstacles in getting their cloud based product to the consumer.
Companies like Netflix are hitting more and more obstacles in getting their cloud based product to the consumer.

However, what's still unsure is if the interpretation of the laws go against federal regulations and laws. There are federal laws that could apply to this situation that would seemingly go against this interpretation of the law, with a couple of them being the Federal Telecommunications Act and the Permanent Internet Tax Freedom Act that's currently in the Senate awaiting vote(which has multiple elements related to it, but the biggest one being multiple collections of tax on the same online good). The second one, which was originally the Internet Tax Freedom Act, was not extended at the end of 2014, but provides information from a historical perspective.


Information was updated as the ITFA went out at 2014, and it's replacement was put on the docket on 2015.


Have a tip, or want to point out something we missed? e-mail us at [email protected] or join us on Discord!