Chicago’s Netflix Tax: Targeting the Cord Cutters?
chicagomag.com
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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...
How is this different than any other local tax in that regard?
Now, of course, if the COUNTY decides to implement a new tax, that's a whole new set of paperwork that has to be done. But it still only affects the businesses in that locale.
To tax EVERY company that does any kind of business with any customer located in the city means that now tens of thousands (?) of companies have to price this tax in.
Where do we end up when every streaming company has to separately track and pay taxes in hundreds of thousands of municipalities, counties, states across the country?
You are only partially right there. The local presence requirement is for the obligation to collect the tax. If your company doesn't have a local presence, your customers are still required to pay the tax themselves. Very few tax payers actually follow that rule which is why local municipalities are so adamant about the taxes being collected by the business.
The Netflix side of this tax is technically on consumers so Netflix has no real legal obligation to include it on their bills. So it seems to follow the same rules of any other local tax.
Making it even less likely that a new company would want to start there.
> We're going to kill this thing.
Thank you. This kind of thing needs a rapid response wherever it crops up, lest it spread elsewhere. "This was tried elsewhere and quickly repealed" is an argument that makes it far easier to vote down such measures elsewhere.
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.
Chicago and Illinois are not high-tax high-spend jurisdictions. The top income tax rate in republican Virginia is almost double the historical income tax rate in Illinois. Their fiscal problems are the result of being low tax jurisdictions with moderate expenditures.
A uniform sales tax seems more palatable (as an alternative to an income tax, not in addition to one); however, this is not a uniform tax, it's a targeted tax on streaming services and other Internet services.
City governments will need to adapt to the changing markets and find new revenue streams for sure, but I see the current move as anticompetitive and a bald faced money grab. Some people in the free market have decided that the record stores, sporting events and other local entertainment in the Chicago area are not as good of a value as what cloud services provide. The answer is not to hold these people hostage and tell them they have to pay up regardless. The solution is to take a hard look at what is driving consumers away from local entertainment options and find ways to help your local companies adapt to a changing market.
> This tax is an job-killing...
> ... several hundred companies that are all going to have
> to implement this tax in their software...
edit: Also the ones that sell the services can't be compelled to collect the tax and as such, moving offices away from Chicago saves the cost of tax collection implementation[1]
Back to my original question: how to you determine which tax changes to support and which to oppose?
Fewer Chicagoans, apparently, are employed in building network infrastructure and data centers than in things like video rental and so on, and the more people who are happy to use Netflix the more money flows out of Chicago's local economy. Meanwhile the cost of providing services within the city presumably remains about the same. I gather Chicago has massive unfunded pension obligations due to union lobbying and so forth, but for all practical purposes those are like any other unwanted financial obligation, they're not going away unless you can come up with a good reason why those secured creditors should give up the property interest they negotiated.
several hundred companies that are all going to have to implement this tax in their software if they want to sell locally
Well, this isn't very logical. First, there are 3 million people in Chicago which is a significant market, so it's very unlikely that any firm is going to suddenly refuse to do business with anyone in Cook County even though the administrative cost of said business is due to rise. Where a business is located is wholly irrelevant in this case because it's a consumption tax, so how is it going to kill any jobs in Chicago?
Also, why would you expect these companies to implement the tax in their software? That would be absurd. There are lots of software-as-a-service companies that take care of calculating sales taxes and suchlike so that other companies don't have to, just as there are companies that specialize in administering payroll or other business tasks so that firms can focus on their core competency. From a startup's point of view the additional administrative overhead is likely to be marginal.
We're going to kill this thing.
Oh stop. It's easy to stand up and say you're going to be against some unpopular measure, but that doesn't address the deeper problem. What is your better alternative solution? Forgive me for touching on national politics, but I'm reminded of the national Republican effort to kill Obamacare; I understand what your party dislikes about it, but after 50+ votes to repeal it and endless speechifying there's no results and no concrete alternative on the table. The repeal argument depends on a nostalgic argument that everything was working great before the unwanted policy came along, but the reality is that the previous systems were deeply unpopular and dysfunctional.
It's not that you shouldn't be against this proposal, I share your belief that casting around for new things to slap taxes on is a bad way to shore up public finances. But your arguments are shallow and being against things isn't a real economic program. What positive proposals do you have?
Our positive proposals are here: http://www.illinois.gov/gov/documents/compiledpacket.pdf
But whether you agree with agenda or not, it does not diminish the fact that this particular tax is counterproductive.
as someone who has worked in this before... The data is not as accurate as you might expect it to be, tax jurisdictions overlap zip codes inconsistently, the services are expensive and there are the integration costs that are perpetual.
all of these challenges can be satisfied, but to dismiss it and go off and assume it's a marginal cost is a tad ignorant; especially for a startup that is being bootstrapped by the founder(s).
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.
That perception certainly hasn't hurt San Francisco.
There's nothing Orwellian going on here.
http://www.buskegroup.com/Chicago_Franchise_Agreement_(RCN_2...
The City gets 5% of RCN's gross revenue as a franchisee fee. It seems they're very responsive to the changing times by realizing that cashflow will be disappearing faster and faster as people cut the cable.
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.
http://www.propublica.org/article/how-the-maker-of-turbotax-...
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.
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.
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.
(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.)
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.
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.
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.
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.
If they want disproportionately higher taxes for internet users, maybe try taxing ISPs more?
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-...
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.
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?