City of Chicago Hits Taxpayers with New ‘Netflix Tax’

Published July 30, 2015

The City of Chicago is expanding an existing excise tax on movie and theater tickets to include streaming online video and music services, such as Netflix and Spotify, in order to generate additional revenue.

Steven Titch, a telecommunications policy analyst with the R Street Institute, says Chicago’s expansion of the tax is arbitrary and “an incredible overreach.”

Undefined Terms

“Chicago made the announcement that startups would be exempt from collecting the tax,” Titch said. “Well, that raises [the issue of] equal protection right away. … Which is a small business, which is a startup, and which is an established business? It will have to be legislated.

“We’re getting into arbitrary taxation, and it’s ultimately going to get challenged in court, and there are so many ways that this can get thrown out,” Titch said. “One hopes it will happen soon, but it’s only going to last as long as it’s tolerated, and I think it’s going to be very difficult to collect and enforce because it is so diverse.”

 Titch says the new tax will be nearly unenforceable.

“It’s going to come down to where the address is,” Titch said. “If their mailing address is in Chicago, they will get taxed. Now, that raises all sorts of interesting questions. If your parents live in Schaumburg, and you use their address when you sign up for services, will you get taxed? How are they going to ensure the person being taxed actually lives in Chicago or prove they don’t live in Chicago? It’s another aspect of this that hasn’t been thought out very well.”

Falling on Deaf Ears

Carol Portman, president of the Taxpayers Federation of Illinois, says Chicago is administering the new digital tax in a heavy-handed manner.

“They just issued this ruling, said, ‘This is the day it’s effective,’ and that’s it,” Portman said. “There’s not any sort of advisory group, [and the idea was never bounced] around among possibly interested parties. They just came out and said, ‘This is it.'”

Portman says city administrators are unlikely to listen to calls for rethinking the tax.

 “There are people trying to get in to talk to the city and convince [its leaders] that they need to rethink this, but the city is stretched for cash,” said Portman. “So although the dollars associated with this rule aren’t huge, you get the feeling they’re trying to leave no stone untaxed.”

Elizabeth BeShears ([email protected]) writes from Trussville, Alabama.