Apple Fights Chicago’s Tax on Streaming Services

CHICAGO (CN) – Apple filed a new legal challenge Monday aiming to free Chicagoans from the city’s so-called “Netflix tax,” a 9 percent charge on streaming media purchases.

Chicago’s Finance Department expanded its amusement tax in 2015 to add digital streaming services offering movies, music and video games, which would include the tech giant’s Apple Music and iTunes.

To comply, “Apple must incur substantial costs to reconfigure its normal business practices related to transactions with customers with Chicago billing addresses,” according to a lawsuit the company brought in Cook County Circuit Court. The complaint was filed Monday but was not made available from the clerk's office until Tuesday.

The 9 percent tax is illegal anyway, according to the complaint, in violation of the Internet Tax Freedom Act (ITFA) and the Illinois Constitution.

“If Apple does not collect the tax from its customers, it will be directly liable for a tax that the city of Chicago has no power to impose or authority to enforce,” the lawsuit states.

Apple is represented in the case by lead attorney Catherine Battin with McDermott Will & Emery in Chicago.

Making arguments similar to a 2015 lawsuit filed by a group of residents, the tech giant claims the ITFA stipulates that online services cannot be taxed differently from offline ones.

“The electronically delivered music provided by Apple is substantially similar or equivalent to other untaxed offline amusements,” the complaint states, adding that customers purchasing CDs or DVDs at physical stores are not subject to the tax.

Apple says state law regulates all home-rule ordinances, and Chicago is reaching beyond its authority by taxing customers that may be streaming music outside of their city addresses, where the tax shouldn’t apply.

A judge saved the tax expansion earlier this year, granting summary judgment in favor of the city in the 2015 case. The tax is expected to generate an extra $12 million a year, for now. That decision has since been appealed.

Chicago officials did not immediately respond Tuesday to a request for comment on Apple’s lawsuit.

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