This guest post was written by Travis J. Sabaitis, a student in the Entertainment Law and Web 2.0 course at Southwestern Law School.
It isn’t even Halloween yet, but already for those in the entertainment industry, a chill gust is blowing across the lake in Chicago: That’s because the cash-strapped Windy City has said it will adjust its amusement tax, which previously had been collected on items such as tickets to sporting events and live concerts.
The administration of fiery Mayor Emmanuel Rahm has decided to impose a new nine percent levy targeting those who access online “entertainments,” especially those who use popular cloud-based streaming websites; legal analysts say they know of no other local government in the U.S. that has pursued such a tax.
Consumers of television broadcasts, online video, sports programming, games, music, and any other entertainment content delivered electronically soon may have to fork over more money for their every day services. Companies like Netflix and Hulu will be subjected to the taxes on streaming services they offer and they say they will pass on directly these charges in the form of increased rates for consumers (according to a Netflix spokesperson).
It also may become more costly for Second City consumers to access their subscription-based news sites as a result of this tax, which some angry users already have challenged.
The tax is expected to rake in around $12 million annually for Chicago, which may be a good thing for a city that is, at the moment, running a massive deficit. The tax could help the city’s school system, which has seen its funding cut again and again. Perhaps the revenue could help the city’s police force combat Chicago’s growing murder rate. It’s clear why city leaders would want more revenue in the municipal coffers. But this amusement tax may be legally problematic way to raise it.
This tax, for example, fails to differentiate between news and other types of streamed programming; if you’re watching streamed news from PBS, ABC or the BBC, is this entertainment subject to this tax and would providers need to hike any charges to cover the levy? If so, raised rates could limit many individuals’ access to news content, serving as a sort of choke-hold on the press and creating First Amendment concerns.
New fees on online databases
City officals also expanded their view of how the personal property lease-transaction tax should be imposed. Translation: Chicago also will be taxing online professional services. such as electronically accessed databases used by lawyers and real estate agents. As a public-policy consideration, when so many government agencies — federal, state, regional, county, and local — are trying to improve their services by boosting their offerings, and in some cases streaming them online, does it make sense to charge citizens more to access what they’re already paying for? And does this step increase economic disparities, with the taxes adding even more to the burden of the poor as they try to avoid falling already on the wrong side a digital divide?
As for the amusement levy on streamed services, it may be barred by federal law, as opponents argue that it violates the Internet Tax Freedom Act. That act forbids the government from imposing “Internet only taxes,” which would only apply to services offered online. This tax does just that, affecting subscription-based companies like Netflix, Hulu, Spotify, Pandora, and X-Box Live, which provide streaming services that can only be accessed via … the Internet. (The tax, city officials note, will not be imposed on single-purchase, online downloads of music or other entertainments).