Group acts as public buffer on streaming service tax
The Illinois Policy Institute won't sit back and watch as lawmakers consider imposing a statewide sales tax on internet streaming services.
The Illinois Policy Institute, a public policy research group, said an amendment that is part of the Grand Bargain currently under debate in the General Assembly would place a 6.25 percent tax on services like Netflix, Spotify and Xbox Live, as well as increasing taxes on cable and satellite television.
The amendment to Senate Bill 9 was filed by State Sen. Toi Hutchinson (D-Chicago Heights) and would also expand the tax to landscaping, repair work, laundry, tanning, tattoos and body piercings.
The Illinois Policy Institute said the fallback to tax proposals is typical of Illinois government.
"Throughout the 'grand bargain' discussions, taxpayers have been disregarded, as lawmakers opt for new taxes instead of the necessary budgetary reforms the state needs," the group said. "The new proposals taxing services – including cable and satellite TV and internet streaming – offer nothing more than a bigger bill for taxpayers, especially in Chicago."
The Illinois Policy Institute said the challenges of such a tax are on display in Chicago, which enacted a 9 percent amusement tax in 2015, which includes streaming services. That tax is currently facing a legal challenge from the Liberty Justice Center, which filed suit on behalf of streaming service customers. The center argues that the tax is not legal under state and federal law.
To highlight the potential costs of the recently proposed tax, the Illinois Policy Institute pointed to restaurants and bars with premium sports subscriptions, which can cost between $5,000 an $10,000 a year. The 9 percent Chicago amusement tax equates to more than $400 per year. If the state’s proposed 6.25 sales tax is enacted, that figure would jump to at least $762. A Chicago resident paying for a $9.99 monthly Netflix subscription would end up paying approximately $11.50 with those same taxes applied.
Outside of Chicago, the 6.25 percent tax would increase the Netflix bill to $10.61.
The Illinois Policy Institute also questioned what it described as confusing language in the amendment.
“The Senate’s tax would be imposed on ‘the privilege of using [the taxable service] in this state,’ according to the proposed legislation,” the Illinois Policy Institute said. “That language makes the application and collection of a tax on streaming services ambiguous and potentially illegal. First, what does using a streaming service in Illinois mean? Does it apply to a person with a layover at O’Hare International Airport who is passing the time watching Netflix on her tablet? Or does it apply to any resident of Illinois regardless of whether she is within state lines when she uses Spotify or Netflix? The bill doesn’t say.”
The group also said that based on its reading, the tax could violate federal law.
The Internet Tax Freedom Act, enacted in 2000, stipulates that states cannot apply discriminatory taxes on electronic commerce. A 2013 case overturned an Illinois tax on online retailers that was applied to companies that didn’t have a physical presence in the state.