Chicago Soaks the Cloud

July 7, 2015, wsj.com     Chicago is grasping for any and all revenue to ease its fiscal woes, and its latest move is to tax Internet cloud services. Starting Sept. 1, such content-streaming companies as Netflix and Spotify will have to pay a 9% tax on their services, a cost that will surely be passed along to their Chicago customers.

The city’s Department of Financing has ruled that these “electronically delivered amusements” are covered by the city’s existing amusement tax and personal property lease tax. The city estimates the new tax will generate a mere $12 million a year, which is barely a dent in its projected 2016 budget deficit of $430 million in operating expenses and $550 million in increased payments to the police and fire pension funds.

Chicagoans already pay a 9.25% sales tax including the portions that go to the state, county and municipal governments. Surrounding Cook County may soon raise its sales tax levy, which would put the overall sales tax in the city above 10%, one of the highest in the nation.

But the real import of the new tax is that it extends the reach of government revenuers into entertainment and other services consumed on the Internet at home. Previously you had to go to the movie theater or ballpark to pay up. Now the tax man will come to your living room and snatch 9% on your movie or music streaming if you live in Chicago.

As Web content services expand and become a regular part of American life, the government revenue take will expand too. Think of Mayor Rahm Emanuel as an apparition on your sofa dunning you each time you watch “House of Cards.” And then imagine every other politician who will want to get a share of this nearly automatic Internet revenue stream. This may explain why Mr. Emanuel hasn’t objected to the new levy, which may violate the federal Internet Tax Freedom Act.

Ronald Reagan liked to quip that if it moves, government will tax it. In Chicago now—and maybe soon in your neighborhood—that will literally be true.