Chicago’s New ‘Cloud Tax’ Forces Services Like Netflix To Add 9% Tax

It was bound to happen at some point. As more of us move online for all of our entertainment needs, governments are continually looking for ways to negate the losses of people moving away from physical entertainment. Video stores had to pay taxes, it could be argued, and thus services that digitally send you content should, too.

Of course, it really isn’t that simple. The biggest problem here is that this is a form of discrimination. Chicago is in effect charging an extra tax on services like Netflix because they’re entertainment – that’s it. It’s an “amusement”. Other services, then, such as Office 365 and Dropbox, should be exempt, because no one has “fun” using those.

Chicago’s overarching law is composed of two separate rulings, one that charges for “electronically delivered amusements”, and another which covers “nonpossessory computer leases”. These are fairly broad categories.

Flickr: Fernando García

Another problem with this is that it’d be charging people tax for a business that’s based outside of the state. Someone’s Netflix content might be coming into Chicago, but the business isn’t actually operating there. Of course, we’ve seen other services, such as eBay, get taxed in certain cities, so Chicago’s move here isn’t too surprising.

This shakes up the belief that the Internet is “free”, or unrestricted, and potentially goes against both the Freedom of Information and Internet Tax Freedom acts. If true, it won’t take long to find out for certain.

Nonetheless, if Chicago’s move is mimicked by others, its effects could be widespread – “electronically delivered amusements” could cover way more than just Netflix.