Chicago’s 'cloud tax' makes Netflix and other streaming services more expensive

On 1 July 2015 a new "cloud tax" took effect in the city of Chicago, targeting online databases and streaming entertainment services. It's a puzzling tax, cutting against many of the basic assumptions of the web, but the broader implications could be even more unsettling. Cloud services are built to be universal: Netflix works the same anywhere in the US, and except for rights constraints, you could extend that to the entire world. But many taxes are local — and as streaming services swallow up more and more of the world's entertainment, that could be a serious problem.


The ruling targets "electronically delivered amusements."


Chicago's new tax is actually composed of two recent rulings made by the city's Department of Finance: one covering "electronically delivered amusements" and another covering "nonpossessory computer leases." Each one takes an existing tax law and extends it to levy an extra 9 percent tax on certain types of online services. The first ruling presumably covers streaming media services like Netflix and Spotify, while the second would cover remote database or computing platforms like Amazon Web Services or Lexis Nexis. Under the new law, what passes as $100 of server time in Springfield would cost $109 if you're conducting it from an office in Chicago.

Although the tax is technically levied on consumers, some companies are already preparing to collect it as part of the monthly bill. Netflix says it’s already making arrangements to add the tax to the cost charged to its Chicago customers. "Jurisdictions around the world, including the US, are trying to figure out ways to tax online services," said a Netflix representative, reached by The Verge. "This is one approach."

The result for services is both higher prices and a new focus on localization. For the web services portion, the most likely effect is simply moving servers outside of the city limits — and, where possible, the offices that use them. Once implemented, streaming services will also have to keep closer track of which subscribers fall under the new tax, whether through billing addresses or more restrictive methods like IP tracking, which is already used to enforce rights restrictions.


Read more: The Verge