Ride the Lightning

Cybersecurity and Future of Law Practice Blog
by Sharon D. Nelson Esq., President of Sensei Enterprises, Inc.

Chicago Levies 9% Tax on Cloud and Streaming Services

July 6, 2015

Hat tip to Carl Roberts.

According to a story from NetworkWorld, attorneys from ReedSmith have reported that the city of Chicago has implemented broad new tax regulations that target the use of streaming and cloud computing services.

In a blog post, the attorneys describe two new tax laws that took effect on July 1, 2015. One is an expansion of the city’s Amusement Tax, which levies a 9% tax on the subscription cost of electronically delivered services. This will apply to streaming music, movie and television services like Netflix and Amazon Prime. A second expanded regulation deals with the leasing of electronic services and now includes cloud services and specifically identifies software, infrastructure and platforms as services.

ReedSmith lawyers call the expansion of these regulations “staggering in their breadth,” and warn they could be a harbinger for other jurisdictions around the country to implement similar taxes on cloud and streaming services. “With these two rulings, the (Chicago Department of Finance) has expanded the scope of its tax ordinances to their absolute limit, if not further. If any state or local governments were wondering how to tax transactions occurring in the Cloud when legislative authority for such taxation is absent, the Department has just sketched a roadmap.”

 
The lawyers believe that cities like Chicago, under great financial pressure, are looking for new revenue sources. And times have changed. Fewer people buy movies and music, preferring to stream them.

Though the law is now in effect, the city will not impose the fees until September, giving a grace period to make necessary changes. But it’s unclear who will be responsible for paying the tax – the provider on behalf of the user, or the customer directly. Initially any user who bills streaming or cloud services to a billing address within the city of Chicago would be impacted by these regulations, but ReedSmith says that raises questions about if the service is not consumed within city limits whether the law would still apply.

ReedSmith lawyers also question whether these new taxes comply with various state and national tax laws, including the Internet Tax Freedom provisions outlined in the Federal Telecommunication Act.

Given the sweeping impact of these laws, they will almost certainly be challenged. I'll be watching this one with great interest.

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