CHICAGO — An Illinois state appeals court has ruled Chicago's city tax on streaming services is constitutional.
In May 2018, then-Cook County Circuit Court Judge Carl Anthony Walker granted summary judgment to the city and denied it to a plaintiff class attempting to challenge extension of the city’s 9 percent amusement tax to also include online streaming services such as Hulu, Apple Music and Amazon Prime.
Illinois First District Appellate Justice Jesse Reyes wrote the opinion on the plaintiffs’ appeal, issued Sept. 30. Justices Bertina Lampkin and Eileen Burke concurred.
Illinois First District Appellate Justice Jesse Reyes
| Illinoiscourts.gov
Walker has since also become a justice on the Illinois First District court. He played no role in considering the appeal.
The plaintiffs, represented by the Chicago-based Liberty Justice Center, raised three issues on their appeal. They argued the tax exceeds the city’s home rule authority by taxing activities outside Chicago; the tax violates the uniformity clause in the state constitution; and the tax violates the federal Internet Tax Freedom Act by discriminating against electronic commerce.
According to Reyes, the plaintiffs relied on a 2017 Illinois Supreme Court opinion in Hertz Corporation v. City of Chicago, in which the state's high court agreed the city couldn’t presume where someone would use a rental car based solely on their home address. But Reyes said the city’s streaming tax establishes “a rebuttable presumption of residency” in that it reads, “it shall be presumed that the tax does apply unless the contrary is established by books, records, or other documentary evidence.”
The panel further said the rental car tax failed to meet constitutional criteria because it taxed prospective use, including tax to be paid by suburban agencies within three miles of the city limit. While it wouldn’t be proper to assume a person lives in the city based only on their credit card billing address, the panel continued, it found the ordinance is written with “the objective of taxing only those customers who engage in amusements in Chicago. In the case of electronically delivered amusements, which are indisputably amusements but differ from fixed venue amusements, the city council evidenced its intent to tax said amusements based on the patron’s primary place of use as defined by the (Mobile Telecommunications Sourcing Conformity Act).”
Unlike the constitutionally invalid tax on rental cars, the justices said the city is justified in using a home or business address to determine who should be made to pay the city's tax on streaming services.
The panel said the plaintiffs failed to shut down the city’s justification for taxing residents who stream, as opposed to anyone who streams while in the city. Reyes wrote the city’s argument of administrative convenience is "logical," and also agreed with the city that streaming services and other kinds of electronic amusement devices, such as a jukebox or video arcade game, can be taxed differently.
"Here, there is a real and substantial difference between residents and nonresidents of Chicago; those who reside in Chicago have residential or primary business addresses that are in Chicago, nonresidents do not. The City then uses these addresses to determine the patron’s primary place of use of the streaming services," Reyes wrote. "...This classification bears a reasonable relationship to the object of the amusement tax, which is to generate revenue for the City."
Reyes said the argument over the ITFA is similar in that there are substantial differences between streaming a movie or song and paying to attend a screening or live concert.
“Had we agreed with plaintiffs and come to the conclusion that streaming services were the same as automatic amusement devices and live cultural performances,” Reyes wrote, “a discussion of the potential discrimination against electronic commerce … would be warranted. We, however, came to the opposite conclusion.”