The city of Chicago is enforcing a new and unprecedented tax on cloud services, possibly raising the cost of Netflix, Spotify, and other forms of streaming entertainment for residents.
As The Verge reports, the so-called “cloud tax” went into effect on July 1, and levies a 9 percent tax on “electronically delivered amusements” such as streaming video, streaming music, and online gaming subscriptions. It does not apply to books, or to content that users download permanently. Netflix says it’s already planning to add the extra charge to Chicago customers’ monthly bills.
Keep in mind that this tax is separate from sales tax, which Netflix and other services already charge in many states as required by law. The rationale behind this new charge is that streaming services are eliminating the need for brick-and-mortar video rental shops and music stores, which would have been paying Chicago property taxes. In the midst of a budget crisis, the city is hoping that streaming services can make up some of the difference.
The cloud tax doesn’t only apply to streaming. Chicago is also extending its Lease Transaction tax to extract 9 percent from databases and cloud computing platforms that do business in the city. Companies in Chicago that are paying for server time from platforms like Amazon Web Services will therefore face an extra $9 charge for every $100 they spend. Cloud storage appears to be exempt from the new rules, at least.
Why this matters: While the new charge is bad news for Chicago residents, it’s unlikely that this will be an isolated incident. Other cities around the world have also been trying to tax the cloud, and whether or not you agree with the justification, the reality will likely be new headaches for services and their customers as various municipalities tries to cash in.