

Chicago’s Netflix Tax: Targeting the Cord Cutters? - lseemann
http://www.chicagomag.com/city-life/July-2015/Chicagos-Netflix-Tax-Targeting-the-Cord-Cutters/

======
ccleve
Chris Cleveland here, Chairman of the Chicago Republican Party. This tax is an
job-killing, counter-productive, astoundingly bad move.

We are actively working against it. I work out of 1871, a Chicago incubator,
and I'm surrounded by several hundred companies that are all going to have to
implement this tax in their software if they want to sell locally.

We're going to kill this thing.

UPDATE:

Sign the petition here: [https://www.change.org/p/chicago-city-council-repeal-
the-chi...](https://www.change.org/p/chicago-city-council-repeal-the-chicago-
cloud-tax)

~~~
rayiner
The Internet is taking things that were traditionally taxed (cable TV) and
moving that activity to things that aren't taxed (content delivered over the
Internet). Television is just the tip of that iceberg. What's the general
solution to that problem?

And while I'm probably on the same page as you re: Chicago's profligacy, let's
face it: Chicago needs to raise money. Economically, aren't consumption taxes
better than raising the same money from income or property taxes (or head
taxes or corporate taxes)? I'd argue that instituting a city income tax or
raising property taxes will move more people out of Chicago than taxing
Chicago _consumers_ [1] for internet services.

[1] The effective incidence of sales taxes is complex. But I imagine most
Internet services will be able to pass most of the cost onto consumers.

~~~
nullrouted
Solution: Smaller government

~~~
anigbrowl
That's a slogan, not a solution. Purely at the local level, I like things like
street lights, roads without holes in them, public parks, libraries,
functioning emergency services and so on. So do a lot of people who live in
cities, and they get upset when those services are cut. Now those things
involve a cost, so the problem we have is how to minimize that cost and
distribute it equably and efficiently. 'Starve the beast!' is no more of a
viable plan than 'Eat the rich!'

------
TrevorJ
On paper, this logically follows from the tax regs Chicago already has on the
books. They have an "Amusement Tax" (Orwell couldn't have named this better
himself) which applies to co's that sell tickets to shows, etc.

From my understanding what this new rule does is to no longer exclude cloud
providers from this tax.

Be that as it may, this makes Chicago seem insanely tone deaf and outdated in
their response to the changing times. My perception is, there's already a
brain drain in Chicago in terms of young, technically minded talent. Crap like
this certainly doesn't make Chicago seem more appealing tech savvy people who
are considering a move.

One might argue that on paper the money involved for an individual won't be
that much, which is sort of true but the bigger issue is perception. This
makes Chicago seem like a greedy money grubbing place that's gonna nickel and
dime you any change they can get.

~~~
gyc
>One might argue that on paper the money involved for an individual won't be
that much, which is sort of true but the bigger issue is perception. This
makes Chicago seem like a greedy money grubbing place that's gonna nickel and
dime you any change they can get.

That perception certainly hasn't hurt San Francisco.

~~~
nugget
The Bay Area can get away with way more than any other place because of its
concentration of tech company hq's and the associated valuation and m&a
premiums. Other cities have to compete on a much more level playing field.

------
anigbrowl
The one thing I agree with the Tea Party conservatives about is the basic
notion of 'taxed enough already.' Not so much the amount of tax (and most of
their analyses are wildly inaccurate or outright untruthful), but the
_variety_ of taxes. There are just too damn many different taxes, exemptions,
and layers.

I think this is a consequence of too much democracy. The notion that you'd
have one federal government and a bunch of states serving as 'laboratories of
democracy' is a neat one and it does provide a means for change to 'bubble up'
from the local level in a way that might take far longer otherwise - the legal
evolution of same-sex marriage is a case in point. But the US has some 3200
administrative areas when you add up all the cities and counties and so on,
all of which have some sort of governing body and many of which have several
(eg school districts). It's hard for voters to really evaluate all candidates
for the many electoral offices and all ballot propositions, never mind keeping
on top of the lobbying that goes on within city and county administrations.
The more lobbying there is, the more complex tax codes get, the more
administrative disputes there are, and so on.

I don't agree with conservatives about the notion that government is out to
take over our lives, insofar as government just attempts to be as responsive
to the variegated demands upon it as possible. Government in the abstract does
not want to extract wealth from people any more than capitalism in the
abstract wants to make some people poor; those downsides are just an
inevitable side effect of how these institutions operate as currently
constituted. The more complex the apttern of governance, the more expensive
and unresposive ti becomes at an individual level.

~~~
the_watcher
I don't really care what side of the political aisle you are on, or if you
think we are being taxed too much or too little in total. The fact that
someone who passed a high school level econ course and gets no further formal
education cannot ever hope to understand the tax code without being a true
exception is a huge problem.

~~~
anigbrowl
Yeah, a desire for tax simplification seems popular across virtually the whole
political spectrum (leaving out a few ideologues at the fringes who want
communism or the complete elimination of taxation).

I suspect part of the reason for the political inertia on this topic (besides
all those sweet, sweet lobbying $$$) is that the tax code is now so complex
that it's enormously difficult to assess what the net effects of simplifying
it would be.

~~~
the_watcher
It's also something that, while everyone seems to agree on it, the actual
process of simplifying it is stupifyingly boring.

------
meesterdude
On one hand, it's not hard. City costs X and need to raise money to cover X. I
wish they would just send everyone a bill and be done with it, and not have to
sneak taxes into everything. I really don't like that, especially for things
which they otherwise have no involvement in.

Equally, I get that taxes are hard and certainly not popular. Not everyone can
pay the same or spends their money the same way; but if you tax what I earn
and tax what i spend, and you still don't have enough, that's just shitty
management of my money.

Things like this, where some state gets to decide some arbitrary tax rule that
companies must follow, is anti-competitive and hurts small businesses. For a
large corporation to work with this is not a big deal, but for a small
business it's too much to navigate.

I'm all for paying my fair share to support the infrastructure and my local
community; but there has to be a better way.

~~~
cortesoft
Well, any tax always does two things: generates revenue and affects behaviors.
When taxes are designed well, both effects of the tax will be intentional and
attain some desired goal. For example, carbon taxes can be used to both raise
revenue to deal with the externalities of carbon pollution, and incentivize
people to pollute less. These are both desirable goals. Taxes in cases like
this act as ways to 'price in' the externalities of transactions that pure
market based pricing will not capture.

Taxes like this Netflix tax, however, do NOT seem to be attempting to 'price
in' any sort of externality, nor influence behavior in any sort of socially
beneficial way.

------
slg
Judging by the few early comments and what I know about the HN community, I am
guessing this will be a wildly unpopular tax here. Before just shooting this
down, I would be curious what our suggested alternatives would be. As
mentioned in the article this tax is an attempt to solve the problem of lost
tax revenue due to local tax paying business being replaced by internet
business that have no obligation to the local economy. What is a realistic
option for Chicago outside of taxes like this?

~~~
JoshTriplett
Spend less, and then you need less taxes to cover those expenses. Create an
environment where businesses will want to start and to grow, rather than
creating taxes that will specifically make new businesses go out of their way
to avoid the the area. This kind of tax makes Chicago drastically less
appealing to start a business in, and it's sufficiently bad to make it worth
considering a move for any company that isn't inherently local. And "companies
that aren't inherently local" are exactly what this tax targets.

(Note in particular that for any business without a local nexus in the state,
this exceeds the taxing authority of a city or state, as it would be
regulating inter-state commerce.)

~~~
eli
> for any business without a local nexus in the state, this exceeds the taxing
> authority of a city or state, as it would be regulating inter-state
> commerce.

IANAL, but I don't think that's true. The locality can tax its citizens pretty
much however it wants. Without a local nexus Chicago may have a hard time
forcing _Netflix_ to collect the tax on their behalf. But that's an
implementation detail. Chicago citizens would still technically be on the
hook.

~~~
JoshTriplett
It'd be interesting to see that tested in court. I know there have been cases
that struck down regulations on inter-state commerce, in particular when
there's no nexus in the state. It doesn't suffice to claim you're taxing
citizens rather than transactions; courts do look at intent and net effect
when evaluating a law.

A tax on the internet connection itself would sadly be within the taxing
authority of a state; however, a tax on an Internet service provided outside
the state would be in effect a tax on "imports" across state lines (or country
lines in the case of international services), and only the federal government
can levy those.

~~~
phil21
It's quite well established that if you don't pay sales tax at the time of
sale (e.g. via mail order/on-line) you are required to submit a use tax
voluntarily by self-reporting.

Of course pretty much no one does this. There are exceptions such as some
states aggressively going after taxes on the sales of cars you buy across the
state line/etc - but in general it's wink wink nudge nudge.

If you're in a state with sales tax, and have ordered from an out of state
retailer you are breaking the law if you don't pay use tax on that item.

[https://en.wikipedia.org/wiki/Use_tax](https://en.wikipedia.org/wiki/Use_tax)

~~~
JoshTriplett
Cars are a special case, not just because of their size and thus ease of
detection, but because you're required to obtain a license to operate it in
the state, and the state can set arbitrary conditions on such licensure.

More generally, however, under what constitutional authority are you
suggesting that states could levy a sales tax on inter-state (rather than
intra-state) commerce? That is a power specifically reserved to the federal
government, and not granted to the states.

There have been federal bills proposed that would authorize states to collect
such taxes, and if such a bill passed, that would delegate the necessary
taxing authority. To the best of my knowledge, no such bill has passed into
law. Why do you think such a bill would be necessary if states can do this
already?

In any case, one more reason to be in a state with no sales tax. I certainly
wouldn't want to fight that particular legal battle myself.

~~~
eli
States and localities can tax their residents pretty much however they please.
The fight over the "Amazon tax" has always been about whether Amazon was
required to _collect_ the tax or whether people were supposed to mail a check
to the state on their own. There has never been any serious doubt over whether
states and cities can levy the tax in the first place, just over whether they
can force out-of-state companies to collect it for them. The bill you're
thinking of is probably the Marketplace Fairness Act, which was about letting
states force retailers with sales over $1 million to do the work of actually
collecting the tax.

------
meritt
The way this law is written, if you're visiting Chicago and decide to stream a
movie, stream music, or check your brokerage account (on devices you own with
accounts established outside of Chicago), "the provider should then collect
tax on the charges apportioned to use inside Chicago." [1]

So basically Chicago thinks they deserve a 9% tax on all information and media
consumption that occurs within their city limits. I guess I simply won't
bother to visit Chicago ever again.

I wonder what the tech company exodus is going to look like. This could
actually be a huge boon for Kansas City who is doing everything they can to
attract tech companies.

[1]
[http://www.hmblaw.com/media/109579/lease_tax_ruling__12_6-9-...](http://www.hmblaw.com/media/109579/lease_tax_ruling__12_6-9-15.pdf)

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the_watcher
This reminds me a bit of the California politicians who have floated the idea
of a mileage tax to offset the reduced gas tax revenue that better fuel
efficiency has caused. Not quite the same when I think about it though, as gas
taxes are nearly always proposed and passed as vice taxes to encourage
behavioral change. I'd be more sympathetic to a mileage tax with revenue
specifically earmarked for infrastructure improvements, but I'm not hopeful
about that happening.

~~~
rconti
I first heard this proposed in Oregon (implement GPS receivers so you can pay
per-mile taxes (and be tracked!) so that we don't have to raise gas taxes!)

It has also come up in CA and (I believe) at the federal level, to offset
increased efficiency gains.

It's absolutely maddening that politicians consider it to be EASIER to
implement a whole new, complex, rube-goldberg-esque tax, rather than just
nudge the rate on something that's already well-understood and implemented.

------
rblatz
Does Netflix have a physical presence in Illinois or Chicago? If not how can
they enforce this, or has the law changed?

If they do have a physical presence in IL/Chicago doesn't this incentivize
them to move out the area so they no longer have to collect that tax?

~~~
JoshTriplett
Netflix tends to have some degree of physical presence in many places due to
their DVD-by-mail service. That's one good argument for splitting that into a
separate legal entity.

