Lawsuit Filed Against Chicago Cloud and Amusement Tax

Last month, we reported on Chicago’s controversial Cloud Tax and Amusement Tax, and how they would negatively affect tech companies, cloud transactions, and streaming services. Now, we’ve come to learn that one group has decided to take a stand against the tax, challenging the legislation in court.

The group, who claims that the city does not have the power to create new entertainment-related taxes, filed a lawsuit this week in Cook County Circuit Court, under the grounds that the taxes are illegal.

The Cloud Tax, officially known as the Personal Property Lease Transaction Tax, would go into effect on January 1, 2016. It aims to impose a 9 percent tax on tech-based transactions, like cloud services. The Amusement Tax also aims to impose a 9 percent tax on online streaming services or “rentals”, like movies or shows downloaded on Netflix, as well as gaming programs.

City officials introduced the taxes as a way to boost revenue, citing that the taxes would bring in roughly $12 million per year.

As per the lawsuit, the plaintiffs argue that city aldermen should had the right to vote on the tax changes. Yet, no aldermen voted on the taxes, which makes them illegal.

“The Comptroller has exceeded his authority under the ordinance by issuing a rule that imposes a new tax that the City Council did not authorize in enacting the Amusement Tax,” reads the lawsuit. “If the city wants to tax Internet-based streaming media services, then it should put the measure through the political process, and let Chicagoans have their voices heard through the democratic process.”

In addition, the lawsuit argues that the tariffs violate the federal Internet Freedom Tax Act because they discriminate in the taxation of only certain streaming media at a higher rate than similar services that are not Internet deliverable.

As expected, Chicago’s Law Department released a statement explaining that it intends to fight the suit.

“The City has not yet seen the complaint, but we are confident that the ruling is a valid application of the existing Amusement Tax,” said department spokesman John Holden.

The Cloud and Amusement taxes are just two of several taxes that Chicago Mayor Rahm Emanuel has recently introduced to relieve the city’s struggling budget.

Back in May, the Mayor introduced a plan that would require companies that offer off-site parking at Chicago’s airports to share their revenue with the , in exchange for pickup privileges at O’Hare and Midway airports. He also raised the cost to park at garages in the city’s downtown area and increased taxes associated with cable TV, 911 landline services, among several others.

Needless to say, locals are not pleased. Tax lawyers in Illinois have been struggling to help residents and local business owners battle the higher costs, but the tax raises just keep coming.

The lawsuit – if won – would offer a huge relief for residents and help to offset other growing costs. However, as tax attorneys well know, if one levy doesn’t pan out, another will surely be introduced.