Chicago Tax on Streaming Media Battled in Court

     CHICAGO (CN) — Eyeing a $12 million revenue boost, an attorney for Chicago argued in court that the city has every right to take its amusement tax into the 21st century.
     It’s been roughly a year since Chicago made all internet services that stream movies, music and games subject to the city’s 9 percent amusement tax.
     Users of online-streaming services such as Netflix, Amazon Prime, Xbox Live, Spotify and Hulu filed suit in September, the same month the tax was set to take effect.
     With Chicago trying to dismiss the complaint in Cook County Circuit Court, city attorney Weston Hanscom defended the tax as natural regulatory progression.
     Fifty years ago, “there was no question where the venue was” where amusements took place, Hanscom said at a hearing Tuesday.
     “Technology has developed” since then, however, and the city is simply trying to catch up, he argued.
     Jeffrey Schwab, of the Liberty Justice Center, emphasized at the hearing that this argument does not bear out for consumers who stream an event they could have attended in person.
     While Chicago adds an amusement tax for tickets to see the Cubs play at Wrigley Field, Schwab noted that the city cannot tax a person buying a ticket to see the Cubs play the Cardinals in St. Louis, Missouri.
     The amusement tax is added to streaming services based on billing address, but, “if you have a mobile device, you can use internet services anywhere,” the attorney said.
     Schwab called it unfair that tourists who stream media in Chicago do not have to pay a tax, while Chicagoans who stream out of town do.
     Hanscom countered that it is “not administratively feasible” to tax visitors who “watch one Netflix movie while they’re in town.”
     “The mere fact that that could happen in some circumstances does not mean the city can’t tax” the services at all, he said
     For Schwab, however, this is a clear violation of the Internet Tax Freedom Act.
     Chicago “cannot tax things that are outside of its jurisdiction,” he added.
     Schwab also questioned exactly “what services the city provides to people watching Netflix” to justify collecting a tax.
     The Internet Tax Freedom Act says a municipality cannot “impose multiple or discriminatory taxes on electronic commerce.”
     Hanscom emphasized, however, that the law “does not prohibit taxing products just because they use the internet.”
     Rented videos are also taxed at 9 percent, although under the city’s Lease Tax, the attorney added.
     Hanscom also distinguished live performances from streaming media, in that they “add to the cultural richness of the city.”
     Their differences justify the different taxes, the attorney added.
     Consumers also contend that the city exceeded its authority in implementing a new tax. Mayoral spokeswoman Elizabeth Langsdorf told reporters last July that the city was trying to clarify an old law to “ensure that city taxation is uniformly and fairly applied,” according to a Chicago Tribune report.
     The amusement tax expansion is expected to generate $12 million each year.
     Judge Carl Anthony Walker will decide the city’s motion to dismiss on July 14.

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