Chicago residents saw a new tax law go into effect a few days ago on July 1st. The new cloud tax means those in Chicago will pay a 9% tax on cloud services. That includes popular streaming services like Netflix. It also extends to other streaming media services like Spotify, Apple Music, Amazon Prime Instant Video, and many more. The tax is relevant to any software as a service (SaaS), platform as a service (PaaS), or streaming media service.
Chicago is the first major city in the United States to implement a cloud tax. They certainly aren’t the only municipality trying to make up tax revenue lost from users going online rather than to brick and mortar locations. As we all stream from services like Netflix and Hulu rather than rent movies from the local video store it costs us less. At least it has been. Chicago residents now have the 9% cloud tax to deal with as of July 1st.
It will take some time for companies to figure out how to deal with Chicago’s new cloud tax. Netflix is already taking steps to add the 9% tax to users subscription costs. That will mean an increase of between $0.72 and $1.08 a month depending on how long you’ve been a Netflix member and whether or not you subscribe to their Ultra HD (4K) plan. I wouldn’t expect a decrease in memberships to Netflix coming unless Chicago raises the tax rate.
The first article I read last week mentioned that Chicago Netflix users might turn to VPN to circumvent the tax. While that’s possible I seriously doubt that will happen in any large scale. Paying a 9% tax to enjoy Netflix is different from not having access to the streaming service or having your content selection minimized while outside the United States. Those are more compelling reasons to use Smart DNS or VPN.
In time I think the US federal government will pass a similar tax for cloud services. Rep. Jason Chaffetz of Utah recently introduced the Remote Transactions Parity Act. Time will tell how it compares to last year’s Marketplace Fairness Act which didn’t go far. Perhaps the new bill will face a similar conclusion. Regardless of the outcome, sooner or later I expect an Internet tax bill will be passed at the federal level. In the meantime Netflix users outside of Chicago can continue to enjoy streaming the service without paying extra taxes for the privilege.
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