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The Netflix Tax: Chicago’s Extension of Its Amusement Tax To Include Electronically Delivered Entertainment Faces Numerous Changes and Sets the Stage For Taxing on Streaming-Based Entertainment

September 12, 2017
By Stephanie Cueman

This essay examines the legal framework of the City of Chicago’s taxation of Netflix services and the lawsuit challenging the levy.

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This essay, written by DePaul University College of Law’s DePaul Business and Commercial Law Journal editor-in-chief Stephanie Cueman, examines the legal framework of the City of Chicago’s taxation of Netflix services and the lawsuit challenging the levy.

The City of Chicago’s Netflix tax is being challenged on the ground that federal law preempts local tax rulings, Cueman writes.

At the heart of the complaint is Illinois home rule power and federal preemption under the Internet Tax Freedom Act,” Cueman wrote. “The courts must decide if the tax extension taxes services or goods before it can determine the constitutionality of the tax under the home rule unit provision in the Illinois Constitution. Chicago will also have to show that it is not discriminating against Internet based streaming services and that its tax is applied evenly to the Internet and physical taxes to survive its challenge under the Internet Tax Freedom Act.”

If Chicago is allowed to tax Netflix, other cities in the state will follow the scent of money, Cueman writes.

“If this tax is constitutional, other municipalities in Illinois are likely to enact their taxes on Internet-based streaming services,” Cueman wrote. “As states enacting streaming taxes or expand existing ordinances to include the services, compliance costs will burden the services. Differing taxing regimes will potentially deter new streaming services from entering the market. Additionally, families and individuals that relied on the services may no longer be able to afford them. Subscriptions could begin to fall as states start taxing the services.”