Good news for millennials who kept their parents’ billing addresses: So long as they live outside of Chicago, you won’t have to pay the city’s new “cloud tax.” Starting July 1, residents with Chicago billing addresses will have to pay a 9 percent tax on cloud-based streaming services like Netflix, Hulu, and Spotify. It's part of a change to the city's "amusement tax," which also covers concert tickets, cable bill, and other entertainment. The news was first reported by The Verge.
Chicago’s existing amusement tax has been amended in two ways: first, to apply to “electronically delivered amusements” including streaming TV shows, music, and online gaming; and second, to apply to "nonpossessory computer leases” that allow users to access data from a provider’s computer (read: LexisNexis, Amazon Web Services).
While an extra 72 cents on your $7.99 Netflix subscription may not seem like much, the city expects to collect $12 million each year from the new ruling.
Users with paid subscriptions to these services can expect their monthly bills to reflect the tax by September 1, which is the deadline for businesses to start collecting it. The changes will apply only to “customers whose residential street address or primary business street address is in Chicago, as reflected by their credit card billing address, zip code or other reliable information.” National businesses with headquarters in Chicago could be particularly affected if they subscribe to cloud-based services for their employees.
“These two rulings are consistent with the City’s current tax laws and are not an expansion of the laws,” city spokeswoman Elizabeth Langsdorf said in a statement. “The City’s new rulings clarify the application of taxes to digital goods to ensure consistency and eliminate revenue gaps.” The mayor’s press office did not respond to a request for comment on how the city plans to spend the projected $12 million revenue.
This isn’t the first time global streaming services have fallen under local jurisdiction. In January, Idaho lawmakers approved a 6 percent sales tax on Netflix and other streaming subscriptions. Alabama's Department of Revenue recently proposed a similar change. Even New Zealand is deciding whether to pass a “cloud tax” this year.
And why wouldn’t they? As more individuals flock to their web browsers instead of the box office, Spotify instead of iTunes—“renting” entertainment where it used to be purchased—governments are recognizing a missed opportunity to expand taxes already in place. Now, if you live in Chicago and want to enjoy any sort of paid entertainment, it’s nearly guaranteed to be taxed.