Windy City Takes on Cloud: New Tax on Streaming Media, SaaS and PaaS

By

In a bold and controversial move, the city of Chicago instituted a new cloud tax today that will target online databases as well as popular streaming media services like Netflix and Spotify. The tax is designed to recoup some of the sales tax that has gone missing as consumers shift their spending away from brick-and-mortar stores to digital services. But the way the tax is being instituted raises a number of questions and has gotten the legal community up in arms.

Image via Shutterstock

The new tax is based on two recent rulings from the Chicago Department of Finance. The first involves “electronically delivered amusements” while the second relates to “nonpossessory computer leases.” Both rulings extend existing tax legislation to tack an extra nine percent tax onto certain types of online services.

Streaming media certainly seems to fall under the amusement umbrella, while the second ruling could conceivably cover anything from AWS to Lexis Nexus. According to law firm Reed Smith, the new laws cover streaming media services along with SaaS and PaaS, which amounts to an extremely broad range of vendors and solutions. Consumers using these services in Chicago will now be responsible for paying the tax, and companies like Netflix are already taking steps to incorporate it in their billing processes.

"Jurisdictions around the world, including the U.S., are trying to figure out ways to tax online services," said a Netflix representative. "This is one approach."


Michael Wynne, a partner at Reed Smith, claims the second ruling violates the 1998 Internet Tax Freedom Act, which is meant to prevent discrimination against services delivered via the Internet. And the firm believes both rulings violate the Federal Telecommunications Act as well.

"There's no question that the city needs revenue and I can see where things are escaping the old tax base," said Wynne, "I think the objectionable part is that, instead of drafting new laws for that, we're simply stretching the old laws to fit."

Cities like Chicago are struggling to recoup lost local taxes once derived from video rental and music stores. Consequently, it is very likely other municipalities will institute similar cloud taxes, to the chagrin of consumers and online service providers alike.

The new laws also raise questions about exactly how the tax will be instituted and how companies can possibly comply as mobile subscribers move in and out of the taxable jurisdiction. While the tax officially went into effect today, companies have until September 1 to implement it.




Edited by Maurice Nagle

TechZone360 Contributing Editor

SHARE THIS ARTICLE
Related Articles

Why SSL? The Purpose of Using SSL Certificates

By: Special Guest    2/27/2020

SSL is what facilitates secure internet as it protects sensitive user data. Regardless of whether or not a website handles sensitive data like credit …

Read More

How Does Prototype Sheet Metal Fabrication Work?

By: Special Guest    2/27/2020

Designers having prototypes made for their clients to view and hold has become a normal part of the designing process. Physical models are much easier…

Read More

Is A 5G Phone Contract A Good Idea?

By: Special Guest    2/27/2020

5G service is slowly being rolled out. Soon, it won't just be the major cities that have access to super-fast 5G network, which is reportedly 20 times…

Read More

Dell to Sell RSA Security to Investor Group

By: Tracey E. Schelmetic    2/21/2020

A consortium led by Symphony Technology Group (STG), an American private equity firm based in Palo Alto, California, the Ontario Teachers' Pension Pla…

Read More

In New York City, Smart Buildings Are All the Rage

By: Bill Yates    2/20/2020

Two smart building proponents sat down for a fireside chat at the ITEXPO in Fort Lauderdale, FL, on Feb. 13. Topic of discussion: "The Intersection of…

Read More