The city of Chicago ruffled some feathers earlier this year with the announcement of an amusement tax levied against online entertainment services. The tax would cover video and audio platforms including Netflix, Amazon Prime, Spotify, Hulu, and Xbox Live. That extra 9% charge would generate $12 million annually for the city, helping Chicago close its budget gap.
However, the city has hit a snag in getting that tax off the ground. The Liberty Justice Center has filed a lawsuit in Illinois circuit court to challenge several aspects of the proposed tax. The conservative legal group said that the definition of “amusement” that the tax is based on was not reached by a city council vote, but by the comptroller’s interpretation of an old municipal code. The group’s argument also notes that the “amusement” definition should not include audio or gaming services. The complaint notes that the new rule could be a discriminatory tax by falling on online services and not on the same experience when experienced in physical form. In other words, there would not be a comparable tax either as Netflix’s DVD-by-mail service or on an in-person theatrical or musical performance.
The suit is seeking an injunction to stop the tax, in addition to damages for past fees paid. It’s possible that this decision could have an impact beyond Chicago, since other cities and states may want to change their taxation laws to account for lost sales tax revenue as more and more spending happens online.