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.