Illinois: Court Upholds Chicago Tax On Streaming Services

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Last year we reported on legal challenges to a nine percent “amusement” tax that the city of Chicago imposes on consumers and requires service providers to collect and remit. Over three years ago on June 9, 2015, Chicago issued administrative guidance defining the term “amusement” to include “charges paid for the privilege to witness, view or participate in amusements that are delivered electronically.” For purposes of this article, we refer to the administrative guidance, namely Chicago Amusement Tax Ruling #5, simply as “the Ruling.”

Chicago residents and consumers who subscribe to services subject to the tax, like Netflix, Spotify and Xbox Live, filed a legal challenge against the city in September 2015. The Chicago residents who brought suit were subject to the tax because it is imposed upon individuals “whose residential street address or primary business street address is in Chicago, as reflected by their credit card billing address, zip code or other reliable information.”

On July 21, 2016, the Circuit Court of Cook County, Illinois granted the city’s motion to dismiss with respect to the residents’ claim that the ruling exceeded the administrative authority granted by city ordinance. The city actually amended its ordinance after the suit was filed to endorse the administrative ruling. See, Chi. Mun. Code 4-156 et seq. Subsequent to the law change, the Circuit Court found no need to address this claim.

On May 24, 2018, the Circuit Court issued its decision granting summary judgment in favor of the city as to all remaining claims. In other words, the lower Illinois court upheld the tax. The claims resolved in the city’s favor on summary judgment include the Chicago residents’ assertion that the city’s tax on streaming services violated: (1) the Internet Tax Freedom Act; (2) the dormant Commerce Clause doctrine of the U.S. Constitution; (3) the Uniformity Clause of the Illinois Constitution; and (4) the city’s home rule authority. According to the Circuit Court, these claims each failed for a variety of reasons.

The Chicago residents now have the opportunity to appeal the Circuit Court’s decisions to the Appellate Court of Illinois. On appeal, the residents may challenge both the July 21, 2016 decision on the administrative authority of the ruling and the constitutional claims decided in the city’s favor last month. Time will tell if the Circuit Court’s decision emboldens the city to increase its administrative enforcement efforts against streaming service providers.

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