Netflix, Spotify and other streaming services just got more expensive in Chicago as an update to the city’s amusement tax went into effect Wednesday.
The change adds a 9 percent tax to Chicago residents’ subscriptions to streaming services such as Netflix and the paid version of Spotify.
A city spokeswoman said it would bring in an expected $12 million a year.
At the same time, the city’s personal property lease transaction tax began levying a 9 percent tax on “nonpossessory computer leases,” in which residents pay to access data from a provider’s computer, as in the case of legal research databases, real estate or stock listings and cloud services.
The new ordinances allow Chicago to reap taxes on global services rendered locally, which is why some call the two together a “cloud tax.”
The amusement tax refers to “watching electronically delivered television shows, movies or videos,” “listening to electronically delivered music” and “participating in games, on-line or otherwise.” The tax also applies to in-person amusements but excludes permanent purchases, such as iTunes downloads.
The ordinance says providers will be accountable for collecting taxes from individuals and businesses beginning Sept. 1. But those companies could start collecting taxes sooner to avoid paying the taxes themselves.
Netflix plans to add the tax to its Chicago customers’ bills. “Jurisdictions around the world, including the U.S., are trying to figure out ways to tax online services,” a Netflix representative told The Verge. “This is one approach.”
The taxes affect individuals and companies whose Chicago employees use streaming or cloud-based services.
Both of the taxes have been on the books for years, but on Wednesday expanded to include media and services delivered via the cloud.
“I think they have taken the existing lease transaction tax and existing amusement tax as far as you can take them,” said Michael Wynne, a partner and attorney at law firm Reed Smith.
Wynne said the additional fees, applied in a city already known for high taxes, could be enough to push individuals and companies over the edge. He said that since the taxes will be levied based on Chicago billing addresses, there’s nothing to stop individuals from moving outside city limits or listing billing addresses in other towns. The same is true for businesses.
“Let’s say I sign up for streaming business data in the city but I have offices throughout the country,” Wynne said. “I will definitely make sure my billing goes through a different office.”
He said the new taxes could discourage other companies from starting up here.
The only way to access data without incurring the personal property lease transaction tax is to do it passively, such as by watching a stock ticker. He said anything that requires a user to do a search or make a request is subject to the tax.
“There is nothing you can access that’s not taxable,” Wynne said.
Shawn Carpenter, co-founder and CEO of Chicago-based financial software company YCharts, said he has expected this sort of tax for a few years and knew he would have to factor it into the cost of doing business. He has no plans to leave Chicago but said he doesn’t like this trend.
“We already have a fair amount of expense with various regulations,” Carpenter said. “As more and more get added, it makes it that much tougher to do business.”
He said YCharts has customers all over the world, and that he hopes collecting taxes from those in Chicago won’t be a complex process. Carpenter said he does not yet know how YCharts will do that.
