Labell v. City of Chicago

For many years, Chicago has imposed a 9 percent amusement tax on various forms of entertainment and recreational activities, such as movie and concert tickets, certain theatrical performances and athletic club memberships.

In June 2015, without a vote by the City Council, the city of Chicago Finance Department issued a ruling that extended the scope of that tax to something new – paid Internet-based streaming media services, such as Netflix, Spotify and XBox Live – even though the amusement-tax ordinance does not authorize the taxation of those services.

On Sept. 9, 2015, the Liberty Justice Center filed a lawsuit against the city of Chicago and its comptroller on behalf of six Chicago residents who subscribe to these services, asking the Cook County Circuit Court to strike down the city’s unlawful extension of the amusement tax.

The city of Chicago’s amusement-tax ordinance imposes a 9 percent tax on certain forms of entertainment such as theaters, concerts and sporting events, and on certain recreational activities such as amusement-park admissions, bowling and billiards.

On June 9, city of Chicago Comptroller Dan Widawsky issued Amusement Tax Ruling No. 5, which extended the 9 percent amusement-tax ordinance to new services – Internet-based streaming video, music and gaming services, such as Netflix, Spotify and XBox Live – even though the ordinance itself doesn’t authorize taxation of those services.

The Liberty Justice Center filed a lawsuit in the Cook County Circuit Court against the city of Chicago and the comptroller on Sept. 9 on behalf of six plaintiffs who are subscribers to various Internet-based streaming services and will therefore have to pay the new 9 percent tax on those services.

The lawsuit alleges that the comptroller’s extension of the amusement tax is illegal because the amusement-tax ordinance does not authorize a tax on Internet-based streaming media services. If the city wants to tax those services, it must pass a new ordinance through the City Council – if it can.

The lawsuit also alleges that the city’s taxation of Internet-based video and music services violates the federal Internet Tax Freedom Act because it discriminates against online entertainment by taxing tickets for certain live theatrical and musical performances at a lower rate than it would tax access to those same performances if they were streamed online.

The lawsuit asks the court to: declare that the comptroller exceeded his authority in extending the amusement tax to online streaming entertainment, declare that the tax violates the Internet Tax Freedom Act, and order the city to stop collecting the tax on online streaming entertainment.

National media

Hollywood Reporter: Chicago’s Tax of Netflix, Spotify Subscriptions Challenged in Court (Sept. 11, 2015)

Fox News Channel: City of Chicago Sued Over ‘Netflix Tax’ (Sept. 12, 2015)

Fortune: Netflix and Amazon users sue to stop Chicago’s 9% streaming tax (Sept. 14, 2015)

Daily Mail: City of Chicago sued for ‘trying to sneak in’ a nine per cent ‘Netflix tax’ on streaming websites including Spotify and Amazon Prime (Sept. 12, 2015)

Motherboard: Inside the Legal Challenge to Chicago’s 9 Percent Netflix Tax (Sept. 15, 2015)

Chicago media

Fox Chicago: Lawsuit Filed to Block Chicago’s ‘Cloud Tax’ (Sept. 9, 2015)

ABC Chicago: Lawsuit Filed Against City Over ‘Cloud Tax’ (Sept. 10, 2015)

CBS Chicago: Lawsuit Seeks to Block Chicago’s “Netflix Tax” (Sept. 10, 2015)

Chicago Tribune: Suit Filed Against Chicago Internet Taxes (Sept. 10, 2015)

Crain’s Chicago Business: Chicago ‘Netflix Tax’ Under Fire (Sept. 10, 2015)

Hoy: Demanda Busca Frenar el ‘Netflix Tax’ (Sept. 10, 2015)

Additional coverage

NBC Chicago: City Sued Over Netflix Tax (Sept. 10, 2015)

WGN: Chicago’s Internet Tax Challenged (Sept. 10, 2015)

The attorney for Labell v. City of Chicago is Jeffrey Schwab, Staff Attorney at the Liberty Justice Center.  For more information, or to arrange an interview with Jeffrey about the case, contact  Kayla Weems, Media Relations Manager, at (312) 346-5700 or by email at kweems@libertyjusticecenter.org.