In another stroke of taxation brilliance the city government of Chicago has imposed a 9% cloud tax (cloud: that mystical connection of multiple servers that allows things like Google Docs and Netflix to work). The city believes the tax, which supposedly is an extension of the Amusement Tax, will bring in around twelve million dollars annually, but nobody else is especially excited about the additional costs, and small- and medium-sized businesses (SMBs) are particularly cantankerous. Understandably so.
Many SMBs use cloud-based services, and the increased costs are significant. Chicago-based business owners, like Justin Massa, have concerns about sales, now that their products and services are 9% more expensive for Chicago residents. Although the city is considering exemptions for startups, the uncertainty surrounding the tax has been discouraging to both the startups that may or may not be immediately affected and the small businesses that may be compromised by extra costs. Since the tax affects streamed data services and “nonpossessory computer leases,” Spotify, Netflix, Hulu, Dropbox, and others will cost an additional 9%. Streaming stock analysis (paid, not a stock ticker), real-time realty listings, and other cloud services are also affected, straining businesses who already have high cloud expenses.
The good news for Chicago business owners is that Mayor Rahm Emanuel has decided to revisit the tax to appease the technology and business communities. Somewhere, between his efforts to “even the playing field” for brick-and-mortar businesses against internet-based businesses and to be a friend to technology, the good mayor intends to balance the cloud tax. It should be interesting to watch. Meanwhile, the good citizens of Chicago had better start saving their pennies for the next Netflix binge. No tax exemptions for them.
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