Cash-strapped Chicago Desperately Seeks Revenue by Taxing the Cloud

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By James Hirsen 

Copyright James Hirsen

“If you drive a car, I’ll tax the street. If you try to sit, I’ll tax your  seat.
If you get too cold, I’ll tax the heat. If you take a walk, I’ll tax your  feet.”
–George  Harrison

The Windy City has done the Beatles’ “Taxman” lyrics one better by going after streaming concerns, which happen to include Netflix, Spotify, Xbox Live, and Apple Music, amongothers.

As brick-and-mortar retail outlets are on the decline and costs of online services are on the rise, cash-strapped municipalities burdened with upside down financial statements have been eyeing the Internet for some relief.

Chicago appears to have taken the lead with its virtual raising of the price of cloud services via a new tax assessment. Since the city is facing a massive budget shortfall, largely due to pension payment obligations, the financially troubled city in an expansion of its “amusement tax” is imposing a 9 percent tax on any activity that involves “watching electronically delivered television shows, movies or videos” (Netflix), “listening to electronically delivered music” (Spotify, Apple Music), or “participating in games, on-line or otherwise” (Xbox Live). The new levy does not apply to downloaded videos, music, or games such as those from the iTunes store—yet.

Chicago is the first major metropolitan area to impose such a tax, and because the city’s new monetary supplement may not be in accord with federal statutes, including the Federal Telecommunications Act and the Internet Tax Freedom Act, it is extremely likely that legal challenges are forthcoming.

Initially, it appears as though the tax will not be collected by city employees but rather by the respective cloud service entities.

“We will be adding it to the cost we charge subscribers,” Anne Marie Squeo, a Netflix spokesperson, told Ars Technica in a statement.

“Jurisdictions around the world, including the US, are trying to figure out ways to tax online services. This is one approach,” the statement read.

Cities and towns across the country will be sizing up Chicago’s tactic and will probably attempt to emulate the fiscal ploy.

In 2013 Chicago mayor and former chief of staff for the Obama administration Rahm Emanuel put forth an initiative that was designed to increase the city’s tech sector. However, it is highly probable that the latest tax on cloud-based services will make the city less friendly to tech startups and additionally drive enterprises to more business friendly locales, thus accomplishing the opposite of the initiative’s intended purpose.

Still, the mayor’s office saw fit to characterize the new tax as a mundane and unremarkable occurrence.

“In an environment in which technologies and emerging industries evolve quickly, the city periodically issues rulings that clarify the application of existing laws to these technologies and industries,” mayoral spokesperson Elizabeth Langsdorf indicated in a statement. She also conveyed that the new tax scheme is expected to bring the beleaguered city $12 million per year.

The amount of revenue generated by the new assessment may turn out to be even less than predicted. Business enterprises in Chicago, and tech startups in particular, routinely use cloud computing services that include Amazon Web Services and, among others. Many businesses that are located in the city are suppliers of such services, and the additional tax could drive these types of providers to adjacent towns with more favorable business climates.

Taxes are slated to be levied based on billing addresses within the city’s borders, and companies are reportedly seeking to switch their billing addresses to out-of-town subsidiary office locations. Consumers of cloud-based streaming and other services are exploring the use of a post office box or alternate address located in a jurisdiction outside of the city.

Policies that make it more difficult to initiate, conduct, or expand business activity almost always result in a decrease in overall enterprise, drop in employment opportunity, and reduction in the revenue so desperately sought.

All opinions expressed on USDR are those of the author and not necessarily those of US Daily Review.
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