Chicago’s expansion of the “Amusement Services” tax is the city’s latest cash grab. Thanks to a fiat administrative decision by the Department of Finance, the city will impose the 9.0 percent tax on services like Netflix, Spotify, Xbox Live, and Amazon Prime. This burdensome tax has been implemented without a vote by the City Council, and in contrast to United States Supreme Court precedent which requires a “physical nexus” for a local tax to be valid.
The tax collector tried sneaking into living rooms, sifting through the couch cushions, hoping the residents wouldn’t notice. But they did. On September 9th, six fed-up Chicagoans filed a complaint against The City of Chicago and City Comptroller Dan Widawksy. The plaintiffs hold that the defendants have exceeded their authority by applying the Amusement Tax to Internet-based streaming services.
The plaintiffs point out “The Municipal Code does not authorize the Comptroller to impose new taxes that the City Council has not authorized through a city ordinance.” The Municipal Code in question, the “Amusement Tax,” mentions several categories of activities, such as boxing, tennis, and even billiard games. The law defines “amusement” several ways and video services streamed from the internet are never mentioned. The City Comptroller, Dan Widawsky, does not have the authority to include streaming video under the Amusement Tax. Such an action goes beyond the scope of the Municipal Code as enacted by the City Council.
Jeffrey Schwab, an attorney at the Liberty Justice Center explains: “No aldermen voted on this tax. It never went before the Chicago City Council, which makes the so-called ‘Netflix tax’ an illegal tax.”
More specifically, the city’s attempt to apply “Amusement Tax” to services such as Amazon Prime is absurd. In addition to streaming services, Amazon Prime provides subscribers with two-day shipping and discounts, which are not subject to the aforementioned tax. By no stretch of the imagination are these services “amusements” or “places of amusements,” as outlined by city ordinance.
By rewriting the “Amusement Tax” as voted on by the City Council, Comptroller Widawsky and the Finance Department are overreaching their authority. Rather than circumventing the law to tax digital services, the city of Chicago should seek fiscally responsible solutions to its rampant overspending problem.