Chicago’s Netflix Tax: Will This Cost You More Money?

A sign is posted in front of the Netflix headquarters on January 22, 2014 in Los Gatos, California.

Source: Justin Sullivan/ Getty Images

The Internet can be a wide wonderful place to stream any and everything. TV shows, movies, and music have never been more readily available, thanks in large part to the preponderance of services like Netflix, Hulu Plus, and Spotify. Each respective brand boasts an affordable monthly rate designed to give us everything we need without breaking the bank. Unfortunately, not everyone sees that as an opportunity for consumers. Chicago, a city dealing with a $350 million budget shortfall, recently passed a 9% tax on all cloud-based streaming services, digging directly into the pockets of Netflix’s customer-base.

Before we dig in to the “why,” let’s first observe the “what.” Officially, it’s being called the “amusement tax,” and levies its tax against any service streaming movies, TV shows, videos, music, and even online gaming platforms like World of Warcraft. This leaves companies with the choice to either pass that cost on to their subscribers, or absorb the loss. Already though, Netflix has stated they will be raising their subscription price in Chicago, and we imagine other services will soon follow suit. No company is going to eat that much money, meaning the people paying the price in the end will be consumers.

What this represents is brand new territory of taxation; never before has any governing body attempted to “tax the cloud,” and it sets a bad precedent for the future of streaming with little justification that actually makes sense. Yes, it does provide a revenue stream of an estimated $12 million for a struggling city, but imagine the future this paints for video and music streaming. Record labels and studios provide their low monthly pricing as a means to combat piracy; if amusement taxes continue to crop up and take away affordability, those means will be effectively killed.

The fact that no other such tax exists anywhere in the United States should tell us that this is a patently bad idea. There’s a marked difference between taxing Internet highways and actual highways, and with the former we see an unprecedented pricing up of something designed to exist without these limitations. Taxes for things like roads and schools make sense; that money goes right back into improving necessary services we couldn’t exist without. But to do the same for streaming makes no sense, given that the money garnered from such a tax doesn’t go back into improving the service it’s taxing in the first place.

We have no idea just how (or if) this will proliferate, but a future in which it does isn’t positive for the streaming industry. For the most part, pricing for services like Netflix, Spotify, and Hulu Plus are steady, and not prone to any sort of rapid change. In a poll conducted last year, 50% of respondents said they’d cancel their Netflix subscription if their price was raised by $2. Simply put, streaming customers don’t like price hikes, and react accordingly.

Of course it’s not hard to work around the tax for residents of the Windy City. Netflix will be applying the raised subscription rate to any accounts with a billing address in Chicago, making it easy for anyone to simply change their billing address to any other city for the standard rate. The same will likely apply to other services once they set up similar infrastructures to account for the raise in pricing, which could in turn lead to this becoming the most pointless tax on the books. Regardless, the reasoning behind the law in the first place is frivolous at best, painting a picture of a city that doesn’t entirely understand the way modern technology and streaming should work.

Follow Nick on Twitter @NickNorthwest

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