The challenge to the tax policy, filed last week in Cook County state court, is important because it could help define the power of cities and states to tax parts of the internet economy. The lawsuit, filed Sept. 9 in the Circuit Court of Cook County, Illinois, alleges that Chicago's new tax on Internet streaming companies like Netflix and Spotify violated city policy and unfairly punishes them for being customers of those sites. Chicago's comptroller on June 9 extended an existing 9-percent tax on "amusement" activities, like sporting events, to streaming services, but postponed implementation of the tax until Jan. 1 to help companies prepare for it. In a claim that may have national significance, the lawsuit also says the Chicago streaming tax violates the federal Internet Tax Freedom Act, which forbids states and cities from imposing discriminatory internet-only taxes. "The Amusement Tax," according to the lawsuit, "also unlawfully discriminates against electronic commerce because it imposes a higher tax rate on theatrical, musical, and cultural performances that are delivered through an online streaming service than it imposes on those same performances if they are consumed in person." In their court challenge, a group of Chicago residents claim the city comptroller’s decision to apply the Amusement tax to streaming service amounted to a new tax that could only have been imposed by a vote of city officials. "The Comptroller has exceeded his authority under the ordinance by issuing a rule that imposes a new tax that the City Council did not authorize in enacting the Amusement Tax," the suit reads. Subscribers to popular streaming services, including XBox Live and Spotify, have filed a lawsuit that claims the city of Chicago’s controversial tax policy on digital entertainment is illegal.
– Angry streaming customers in Chicago are fighting back against the so-called "Netflix tax," filing a lawsuit against the city last Wednesday that could have national implications, the Daily Dot reports. The plaintiffs—including Netflix, Hulu, and Spotify customers—allege the 9% tax on streaming services (an extension of Chicago's amusement tax) announced in June violates the Internet Tax Freedom Act, which outlaws discrimination against Internet businesses. According to Fortune, the lawsuit claims streaming customers now face a higher tax rate than if they were watching a DVD, going to the theater, or attending a concert. If the suit succeeds, it could hamper local governments' ability to tax Internet services at a time when increased online commerce is shrinking tax revenues around the country. The lawsuit also alleges the streaming tax is essentially a new one, not an extension of the amusement tax as Chicago's city comptroller claimed. New taxes, unlike changes to existing taxes, require a vote of city officials. "If the city wants to tax Internet-based streaming media services, then it should put the measure through the political process and let Chicagoans have their voices heard through the democratic process," an attorney for the plaintiffs says in a press release. The Chicago Tribune reports the city has vowed to fight the lawsuit. The "Netflix tax," part of Mayor Rahm Emanuel's plan to make up the city's budget gap through new fees, is set to go into effect in January.