State's 'illegal' streaming tax described as rerun from Chicago
lllinois failed to learn from a court-challenged Chicago ordinance when it tried to tax streaming services as part of the failed "grand bargain" in the Legislature, an attorney with a Libertarian justice advocacy group said recently.
"It would be like if Chicago tried to impose its amusement tax on you and on all city residents who bought tickets to sporting events outside of the city," Schwab said. "If you went to go see the Cardinals at Busch Stadium in St. Louis, and you lived in Chicago, it would be like the city trying to tax you on that. It goes outside of the city's authority to do that, and that's why it's illegal. Similarly, for the state to do the same thing, it would be taxing things outside of its borders."
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In September 2015, the Liberty Justice Center filed a lawsuit against the city of Chicago, challenging the tax on Internet streaming. The case survived the city's motion to dismiss last summer when a judge sided with the plaintiffs' contention that tax law doesn't treat streaming like live entertainment.
The case currently is in discovery, but a final decision might come in the next six months, Schwab said.
The Chicago ordinance mirrors what the state proposed in the grand bargain, so the state would have run into the same problems the city has if the budget had passed, Schwab said.
"The city applied the amusement tax that applied to amusements that take place in Chicago to internet streaming services," he said. "The problem with doing that is they tax people who subscribe to nternet streaming services differently than they tax other amusements. So if you go to Wrigley Field to go see a Cubs game, it doesn't matter where you live, you buy a ticket, you pay the 9.5 percent; it doesn't matter if you live in Chicago. If you live outside of Chicago, if you live in Ohio, you're paying the tax. But if you are watching Netflix and you live in Chicago, you pay the tax, even if you listen to Netflix outside of Chicago. And if you don't live in Chicago and you use Netflix in Chicago, then you're not getting taxed."
The largely reform-free grand budget failed at about the same time as a statewide poll was released by the Illinois Policy Institute that showed Illinois voters want a totally different state budget deal. About 80 percent of respondents supported spending cuts to balance the state's budget, with more than half saying spending cuts should be the only tool used. Only 7 percent said the state should raise taxes without cutting spending, 70 percent said property taxes are too high, 60 percent said state income taxes are too high, and 81 percent said Illinois is on the "wrong track."
The streaming tax had a number of legal issues, Schwab said.
"One is the tax applies to the privilege of using these services in the state, but it doesn't make clear what that means," he said. "Suppose you're driving across the country, you get on 80, you're driving across Illinois, and you're listening to Spotify. Do you automatically have to pay the tax?"