The city of Chicago, known far and wide as one of the murder capitals of America, also has some of the most exorbitant taxes in the country, with one that really seems outrageous: an amusement tax that now taxes PlayStation users.
As Brittany Hunter writes for the Foundation for Economic Education, a tax imposed by the city of Chicago targets PlayStation users. It was added to the amusement tax that had put a 5% on activities such as an evening at the theater, concert, sports event or a movie.
In mid-November, PlayStation 4 users in Chicago received a message from Sony indicating that as of November 14, 2018, a 9% “amusement tax” would be imposed for PlayStation subscriptions such as PlayStation Now, PlayStation Plus, PlayStation Music. As Hunter notes:
The tax is specifically related to streaming services, so the PlayStation games themselves will not be subject to the 9 percent tax. But in today’s subscription-heavy economy, many users purchase these consoles as a medium to stream videos and music rather than using them solely to play games. Not to mention, the tax will still include subscription services that allow Playstation users to connect and play with other users around the globe. So if you own a PlayStation in Chicago, it is unlikely that you will be able to fully avoid this tax.
Americans for Tax Reform reported of the city’s implementation in 2015 of a “cloud tax” to add to the already existing amusement tax, “The new policy is predicted to generate an extra $12 million in annual revenue for the city, and is seen by many as a feeble attempt to quench the city’s $430 million budget deficit, and the $530 million in increased payments to police and fire fighter pension funds for 2016 … Chicago already has one of the highest sales tax rates in the country at 9.25%. Now, the tax collector can literally infiltrate the living room.’
Hunter points out that although Sony just announced its policy regarding the tax, Xbox and Nintendo users have been paying it for years. She surmises that Sony capitulated because of implicit threats from government. She adds, “A spokesman for the city’s Law Department, Bill McCaffrey, recently said, ‘If a business is not collecting the tax where we believe it applies, the city takes the necessary steps and works with the company to ensure compliance with the law.’”
The Liberty Justice Center fought against the implementation of the 2015 tax in Labell vs. The City of Chicago but the court ruled for the city, permitting it to institute the tax because it was simply a reinterpretation of the existing law.
Jeffrey Schwab of the Liberty Justice Center commented, “We plan to appeal this decision because it has far broader implications than this single attempt to tax online entertainment. Cloud-based entertainment isn’t unique to Chicago, and people take this entertainment in and out of city limits all the time. Therein lies one of the biggest problems with this tax: The city is taxing activity outside its borders because the tax applies regardless of whether a customer actually uses a service in Chicago. If today’s decision is allowed to stand, then local governments across Illinois could tax activity that occurs outside their borders. We will continue to fight for taxpayers against the city’s expansion of its taxing power.”
Apple joined the fight against the “cloud tax,” arguing it violated the Internet Tax Freedom Act (ITFA) of 1998, which banned “state and local governments from taxing Internet access, or imposing multiple or discriminatory taxes on electronic commerce.” Apple also claims the new tax violated the Illinois constitution. Hunter quotes DigitalMusicNews.com’s Daniel Sanchez, who writes:
Under Illinois law, all home-rule ordinances must fall within the limits of the unit. So, a "home-rule unit" – in this case, Chicago – "may exercise any power and perform any function pertaining to its government and affairs. There’s just one problem. Chicago city officials have imposed the Amusement Tax on citizens streaming music when outside the "home-rule unit." By creating an "extraterritorial effect," the company argues, the city has "subjected Apple to collection requirements even for activities that take place primarily outside" Chicago. In addition, the city has extraterritorially expanded its taxing and regulatory jurisdiction to transaction and business activities outside of Chicago.