Chicago taxes Netflix—Why not!

Service taxChicago is my birthplace and my favorite place to visit family. Unfortunately, it is also a city guided by morons.

Chicago politicians think that they can tax cloud and streaming services that sell to their residents, including Netflix, Spotify, Pandora, XBox Live—and even premium email services.

They can enact a cloud tax, of course. But can it be applied fairly? Can it be enforced? —At what cost? It certainly can’t be enforced at a cost that is less than many times the anticipated revenue. But who cares? This is Chicago!

More likely, any attempt to enforce such a screwy tax would simply move the providers further away from Chicago jurisdiction. If the entire country is compelled to honor and collect taxes on behalf of every other municipality, then the service will simply be moved to another country. After all, we are talking about virtual services, aren’t we?!

Can you imagine the Chutzpah? As if there is something local about internet content.

  • The broadband service itself?
    Sure. It fits within a framework of municipal services. These can be taxed as telecommunication services—at least if they have a fixed delivery address.
  • internet-tax-increaseBut a service that originates out of town and is designed for users on the go? Not a chance!

Can Chicago tax at the source? Good luck. Can they tax at the consumption point? (i.e. tax anyone using a service within their jurisdiction). Let’s think it through. The dim bulbs who enacted this tax, haven’t tried thinking, so we will pose the easy questions…

Will they tax tourists passing through airports and checking email or watching Netflix in the waiting area? What about a Chicago resident who watches TV primarily at his child’s home in the suburbs? Does he pay the tax to Chicago? Perhaps the city will create a bureaucracy of exemptions for tourists and residents who consume entertainment while traveling. Why not? Whatever tax is ultimately collected could be used to employ more Internet Savvy politicians! Then it becomes a jobs bill!

Here’s another good scenario: What about an XBox account that was purchased as a gift by an out of state Grandpa. He used his own address so that he can pay the bills. Is Grandpa now an illegal tax delinquent? chicagoWill there be a warrant for his arrest when he visits little Billy? Or will Chicago perform deep-packet inspection to ensure that Billy is lawfully using the Internet and is not using an out of town XBox account?

Perhaps, the tax is simply levied on a subscriber’s billing address. That would be real smart, Mr. legislator! What about a Chicago residence who is traveling far from home? I occasionally use a VPN relay to get around Netflix geographic restrictions. Does a Chicago resident traveling or living in Germany pay a tax to Chicago for viewing Netflix?

This is not a minor land grab. It is a serious attempt to tax the flow of bits.


Chicago City Council meeting

It is doomed to failure, of course. Perhaps city council overlooked the fact that the state recently struck down the Amazon tax. Florida even backed down from taxing real-world services such as dental cleaning, Federal Express, fitness membership and private school tuition. If they found it difficult to tax these businesses with Florida addresses and direct customer contact, just how far do they think a tax on cloud services will fly?

Wild Ducks know that I am given to sarcasm. I promised a few readers that I would tone it down just a scooch. But when wing nuts enact wacky legislation in the name of helping constituents (or in the name of religious freedom), avoiding sarcasm is an unreasonable expectation. Their actions beg to be put into perspective. Not one of these idiots sat down to consider whether a cloud tax is reasonable, fair or enforceable.

Ellery responds. Speak your opinion here.

8 thoughts on “Chicago taxes Netflix—Why not!

  1. Chicago will collect an 81 cent (9 %) tax on the monthly Netflix typical $9.00 bill when the credit card or other billing address is in Chicago. It is very simple. There will be some who take extraordinary measures to evade this tax, but not many. Revenues will still be collected. I don’t see how traveling to a suburban home or Germany or using a VPN affects anything. Deep packet inspection is also irrelevant if the tax collection is simply done as a percentage of the Netflix or XBox billed amount, like sales tax. If Grandpa’s credit card billing address is not in Chicago, the tax will not be assessed. It will still be possible for Chicago residents to find out of town friends or relatives to pick up there Netflix bill as an ongoing gift or reimburse the out of towner each month. Every tax or law has evasion mechanisms, so compliance is never 100%.

  2. With respect, Mr. Brasov, I heartily disagree. All other taxes are based on a shipping address or a clear understanding of the service address (a restaurant in your town or a gardener on your front lawn). Evasion requires a more concerted effort at obfuscating a tangible work-event…

    But if Chicago is enacting a tax for people who are simply billed at a Chicago address, then your statement is way off the mark. You said: “There will be some who take extraordinary measures to evade this tax, but not many.”

    (1) Paying with another address is not an extraordinary measure, especially since a growing number of services accept Bitcoin.

    (2) I suspect that a great many may evade the tax, because it is—quite simply—unfair. Entertainment venues are generally taxed as a function of the seller’s revenue or profits (and by bureaucrats in the seller’s region). While some communities levy a tax on circuses and theme parks, streaming web services do not fit the bill.

    I stand by my conclusions. The Chicago elders are morons, because they are trying to crack the internet tax moratorium, and they are wielding their stick at services that do not place brick-and-morter stores at a disadvantage (the only reasonable argument in favor of an Internet tax).

    The cloud service tax will not stick. In addition to being unfair, it is utterly unenforceable. Hopefully, the morons will be voted out of office. Either way, this tax will ultimately be withdrawn.

  3. Ellery,
    In your brief article and comment above, you have called Chicago lawmakers “morons” (3 times), “idiots” and “dim bulbs” with their “screwy” and “wacky” proposals. Name calling is cheap and does not advance your viewpoint. It is better to stick with the facts, relevant history and a reasoned analysis.

    • Although I hope that the dimwits don’t take it personally, a sarcastic tone is part of my nature and trademark. But, I don’t apply it evenly—that wouldn’t be fair…Instead, I take pains to adjust the slurs and volume to match my level shock or disgust at outrageous behavior.

      In fact, Chicago legislators are more likely capable individuals, but with a profoundly lacking capacity to understand the Internet, macro economics, sociology, and even recent political history.

      I know that you disagree with me, Brasov, but in my book, this makes them numbskulls.

  4. I am not sure if the streaming entertainment tax is good public policy, but that doesn’t mean that the tax won’t stick for a significant time period. I don’t think that many people will take specific action to evade an 81 cent monthly tax, such as going back to CD’s, billing to a friend with an out-of-state credit card or switching to Bitcoin. Also, I doubt that Chicago politicians will be “run out of office” over this. If any are run out, it would probably be due to scandals, high crime rates, other neighborhood issues or high income and property taxes, which are a lot more significant than a $10 per year tax on their Netflix. We will check back after the next city election to see if your prediction comes to pass.

  5. If the tax is defeated, it will probably be due to a successful political lobbying effort by Netflix. Netflix obviously would like to try to prevent or repeal this tax. All companies are against specific taxes on their product or service because it makes it makes them less competitive in the marketplace by effectively raising their prices when the company doesn’t get any of the additional revenue.

  6. Rahm Emanuel was elected 4 times to Congress, served three years as White House Chief of Staff and, of course, was elected twice as Mayor of Chicago. He has many fierce critics, but few detractors would say that he knows little about sociology, much less recent political history. I can’t say much about his knowledge of the internet and macroeconomics. Chicago officials must also know a thing or two about recent political history. The usual criticism is that they are all political.

    • I respect Rahm Emanuel and have grown to appreciate his education and political savvy. I don’t know to what extent he was involved in the decision to attempt becoming an internet tax pioneer (and on the dark side).

      Although MediaITE leads with this headline: “Rahm Emanuel’s Chicago Wants to Tax the F*ck Out of Netflix”, his name is being used as synonymous with Chicago legislators. He is not actually mentioned in the article.

      On the other hand, I note that the Verge agrees with my main point, and in spades! They report that it’s a puzzling tax because it tries to localize (taxes) something that is inherently universal (cloud computing). That is, cloud-based services like Netflix and Spotify will work the same anywhere in the world, so long as the user has a decent Wi-Fi connection. Taxes, however, are usually anchored down to a specific place — countries, states, cities, counties. So how the hell is this going to work?

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