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Consumers are NOT “Amused” by Chicago’s New 9% Streaming Tax

Residents of Chicago may be familiar with the city’s “Amusement Tax,” which levies a 9% tax on admission fees or other charges for the “privilege to enter, to witness, to view or to participate in an amusement.”1 An amusement is broadly defined as including “any exhibition, performance, presentation or show for entertainment purposes,” or “any entertainment or recreational activity offered for public participation or on a membership basis.”2 This expansive definition covers almost any activity imaginable that requires you to get off your couch— from baseball games and concerts, to the ever-entertaining “poultry or animal show.”3


But if you thought you were safe cuddled up on the couch about to start your sixth Netflix episode of the day, think again. On June 9, 2015, Chicago’s Finance Department adopted “Amusement Tax Ruling #5,” which extended the city’s 9% tax on entertainment to include Internet-based streaming services such as Netflix, Hulu, Spotify, Xbox Live, and Amazon Prime, among others.4 In so doing, the Finance Department widened the definition of taxable amusements to include “any paid television programming, whether transmitted by wire, cable, fiber optics, laser, microwave, radio, satellite or similar means.”5 The department’s ruling further specified that the extension of the tax would also include “all amusements delivered electronically,” including television shows, movies, music, and online gaming.6 If a consumer is “renting” the electronically delivered material (usually by temporarily streaming or downloading it), the consumer’s action falls under the Finance Department’s new ruling and is taxed.7 In contrast to renting material, a consumer purchasing online material to own does not fall under the ruling and is therefore not taxed.8


Within a week of the ruling going into effect, a group of 6 Chicagoans filed suit against the City of Chicago and Dan Widawsky, Chicago’s Comptroller.9 The lawsuit, filed in the Circuit Court of Cook County, Illinois, challenges the Finance Department’s authority to promulgate the new tax and alleges that the ruling is in violation of the federal Internet Tax Freedom Act.10


The Complaint argues that “[t]he Chicago Municipal Code authorizes the Comptroller to ‘adopt, promulgate and enforce rules and regulations pertaining to the interpretation, administration and enforcement’ of Chicago’s Amusement tax.”11 It continues to assert that, “[t]he Municipal Code does not authorize the Comptroller to impose new taxes that the City Council has not authorized through a city ordinance.”12 Simply put, the Plaintiffs are challenging the Comptroller’s ability to unilaterally broaden the definition of taxable amusements to encompass Internet-based streaming services.


Many interesting legal questions must be answered in this suit. First, the ordinance imposes the tax on amusements “within the city.” Because the ruling forces businesses themselves to collect the tax, businesses must rely on credit card billing addresses to determine if their customers “reside” in Chicago. Due to the fact that Internet can be streamed virtually anywhere, this methodology may not accurately determine if customers are using the entertainment service inside or outside of the city.13 Second, the tax ruling does not adequately address the problem of taxing bundled memberships. Amazon Prime, for example, provides many nonamusement services such as free two day shipping, discounts on products, cloud photo storage, and an e-book library, all for a single annual membership fee ranging anywhere from $49-$99. Under the Amusement Tax Ruling #5, Amazon Prime members must pay the 9% tax on the full membership fee, regardless if they use the video or music streaming services offered. The ruling places the onerous burden on Amazon to either collect the tax, or to prove that 50% of the membership price paid by a consumer is not for the use of taxable amusements.14


The other important question that needs to be answered is whether or not the Amusement Tax Ruling #5 violates the Internet Tax Freedom Act (“ITFA”).15 In short, the ITFA provides that no State or political subdivision of a State may impose multiple or discriminatory taxes on electronic commerce.16 The Plaintiffs allege that the amusement tax imposes an unlawful discriminatory tax on e-commerce in at least two ways.17 First, the tax applies to Netflix’s video streaming service, and not Netflix’s DVD-by-mail service.18 Second, the ruling provides a loophole, exempting or reducing tax on live theatrical, musical, and cultural performances when they are housed in an auditorium or theater with a maximum capacity of 750 persons.19 This imposes a higher tax on theatrical, musical or cultural performances that are delivered through an online stream, even if it is an audio or video stream of the same exact performance that is untaxed when played in person.20 Taken together, the Plaintiffs argue that this unlawfully discriminates against businesses that operate through electronic commerce.21


Chicago is the first city to attempt to gain revenue through this Internet-streaming tax scheme.22 Amusement taxes are already commonplace around the country for live events, which is more understandable as the event may be hosted at a city venue, requiring city police, transportation, or other public services.23 However, as consumers are already paying Internet service providers for connectivity and paying subscription fees to the entertainment hosting businesses, this tax would appear unjustified to most consumers. While consumers are up in arms about the new tax, Chicago vows to fight this lawsuit vehemently.24 The new tax is projected to raise $12 million annually, which is speculated to cover a large deficit in Chicago’s budget.25

  1. Chicago Municipal Code § 4-156-010. 

  2. Id. 

  3. Id. 

  4. Complaint for Declaratory and Injunctive Relief at 1, Labell v. City of Chicago, No. 2015-CH-13399 (Ill. Cir. Ct. Sept. 09, 2015). 

  5. Chicago Municipal Code § 4-156-010. 

  6. Id. 

  7. Id. 

  8. Id. 

  9. Complaint, supra note 4, at 1. 

  10. Id. 

  11. Id. at 8. 

  12. Id. at 9. 

  13. Id. 

  14. Id. at 9-10. 

  15. 47 U.S.C. § 151. 

  16. Complaint, supra note 4, at 14. 

  17. Id. at 15. 

  18. Id. 

  19. Id. 

  20. Id. 

  21. Id. at 16. 

  22. Jason Koebler, Inside the Legal Challenge to Chicago’s 9 Percent Netflix Tax, Motherboard (Sept. 15, 2015, 7:30 AM), 

  23. Id. 

  24. Id. 

  25. Id.