If you live in Chicago, your Netflix and Spotify subscriptions just got 9% more expensive. So says the city’s Department of Finance which ruled last week to include “any paid television programming,” “electronically delivered music” and “nonpossessory computer leases” under the umbrella of an existing amusement tax.
According to Fusion who reported the story last week, Chicago is the first major U.S. city to impose a tax on streaming or cloud computing services. Effective September 1, the streaming services tax will yield the Windy City an additional $12 million a year, according to the Chicago Sun-Times, a miniscule portion of the city’s $1 billion operating budget shortfall.”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 mayor spokeswoman Elizabeth Langsdorf in a statement.”These two rulings are consistent with the city’s current tax laws and are not an expansion of the laws. These ensure that city taxation is uniformly and fairly applied and that businesses are given clear guidance on the applicability of the city’s tax laws to their operations, and they clarify that the amusement tax and personal property lease tax apply to digital services,” Langsdorf said.The tax will affect rentals of shows, movies, videos, music and games, and a lease tax will be imposed on cloud computing, financial products and other databases. Customers impacted will be those with a residential or business zip code within the city of Chicago.As we reported in April, the state of Alabama has also been considering a tax on streaming services. The State Department of Revenue has amended the tax code to include “digital transmissions,” including streaming services. The 4% tax will be imposed on services like Netflix, Hulu and On-Demand movies starting in October. According to NBC station WSFA12, Alabama will be one of 21 states that tax streaming video.Insider Take:Chicago may be the first major city to impose a tax on streaming and cloud computing services, but it won’t be the last. Cities and states need to replace income lost by physical stores like Blockbuster that have gone out of business, and budget shortfalls need to be made up somewhere.Streaming services are a quick, easy way to beef up a municipality’s bottom line without having to pass new legislation. In fact, in both Chicago and Alabama, officials simply clarified existing laws to make the changes, deftly avoiding legislative challenges in imposing a new tax. Cities and states that have not imposed taxes on streaming and cloud services will likely consider doing so during upcoming budget cycles. Cities and states without a streaming tax will be the exception rather than the rule.Will the “new” taxes have a major impact on the popularity of streaming services? We don’t think so. The fees are nominal (a 9% tax on a $7.99/monthly subscription to Netflix is only $0.72), and streaming services are typically paid for out of expendable income. If a subscriber can’t afford the tax on a service, they probably can’t afford the service to start with.And for cord cutters, even with a new tax, they are still paying much less for OTT services like WWE Network, CBS All Access, Hulu and Netflix than they would for even a basic cable package.