Starting Wednesday, Chicago residents will have to pay a nine percent tax to use streaming services such as Netflix, and remote databases like Lexis Nexis, The Chicago Tribune reports.
The new tax stems out of a June ruling from the city’s Department of Finance that expands both Chicago’s “electronically delivered amusements” and “nonpossessory computer leases” tax to cover certain online services.
The expansion of “electronically delivered amusements” will effect users of media streaming services such as Spotify or Netflix. The latter tax will effect primarily businesses that use services like Amazon Web Services or YCharts.
“We already have a fair amount of expense with various regulations,” Shawn Carpenter, CEO and co-founder of the Chicago based financial software YCharts told the Tribune. “As more and more get added, it makes it that much tougher to do business.”
The tax comes as Mayor Rahm Emanuel seeks to decrease the gap in the city’s budget through increases in various smaller fines and fees.
“A lot of these online companies, their whole business model seems to be to get around the tax code, and to me that’s no business model at all,” said Alderman Ameya Pawar, “This is a step toward trying to correct that situation, and toward making sure the existing code reflects the realities of the marketplace.”
Netflix plans to pass on the additional cost to Chicago resident’s monthly billing. The tax represents the struggle for cities to collect taxes as residents move to become entertained by online services instead of traditional brick-and mortar businesses.
“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,” said mayoral spokeswoman Elizabeth Langsdorf in a statement.
Businesses and users though will seek to easily avoid a tax based on billing addresses.
“Let’s say I sign up for streaming business data in the city but I have offices throughout the country,” said Michael Wynne, a partner and attorney in the Chicago office of the law firm Reed Smith, “I will definitely make sure my billing goes through a different office.”
Along with this tax, Chicago introduced an increase in the minimum wage Wednesday to $10 an hour, which has many feeling the city is hurting itself through anti-business practices.
Michael Reever, vice president of government affairs at the Chicago Chamber of Commerce, said, “This is one piece of a whole picture that impacts why businesses would not want to locate here.”
