A Cook County judge has dismissed Apple’s attempt to delete Chicago’s city tax on streaming services, though the tech giant has a chance to revive the complaint to try again.
Circuit Judge Daniel Duffy issued an opinion March 11 dismissing the August 2019 lawsuit Apple filed in hopes of obtaining declaratory and injunctive relief against the city and then-Comptroller Erin Keane over a June 2015 Chicago Finance Department ruling that streaming media companies are supposed to collect the city’s 9 percent amusement tax from customers.
Apple, like other streaming content providers, said the city’s tax violates the Internet Tax Freedom Act, but added complaints under the state constitution and the commerce and due process clauses of the U.S. Constitution. Apple’s complaint followed a May 2018 opinion in which Cook County Circuit Court Judge Carl Anthony Walker shot down an attempted class action on behalf of city residents and consumer challenging the tax. That ruling was upheld on appeal in 2019 by the Illinois First District Appellate Court, in Labell v. City of Chicago.
In those decisions, Judge Walker and the appeals court rejected arguments about the way the city taxes other forms of amusement, such as coin-operated machines or live performances, the latter of which are “not sufficiently similar to performances or movies delivered through online streaming services,” and taxing machines 9 percent per use versus $150 per year would be “administratively inconvenient for the businesses, customers and the city.”
In its complaint, Apple said the Chicago City Finance Department’s 2015 ruling was the first formal guidance on the definition indicating the city considered “amusement” to apply to charges paid for the privilege of witnessing, viewing or participating in amusements delivered electronically, such as television shows, movies, videos, music and games. It does not, however, extend to media transferred by disc or permanently downloaded.
Apple’s complaint noted its customers secure internet access from service providers unrelated to Apple, and also said the music its customers stream is stored in data centers outside Chicago. Further, it argued the music it provides “is substantially similar or equivalent to other untaxed offline amusements.”
The city asked Judge Duffy to dismiss the complaint, arguing Apple didn’t adequately allege ITFA violations. The city further argued Apple's lawsuit should be barred under the Labell appellate decision.
Apple said its lawsuit is different, because Labell challenged the constitutionality of the amusement tax as it is written, while the new complaint focused on how the city applies the policy.
“To the extent Apple is intending to mount an ‘as applied’ challenge to the Amusement Tax, the amended complaint is lacking,” Judge Duffy wrote in the most recent decision. “None of the four counts of the amended complaint is pleaded with remotely sufficient specificity to set out an ‘as applied’ challenge to the constitutionality of the Amusement Tax on any of the grounds cited.”
Duffy further said allegations about Apple’s electronic officers “are completely generic,” and while the company isn’t required to put all its evidence in a complaint, “it must plead facts.”
Duffy dismissed Apple's complaint without prejudice, meaning the company will have the chance to amend their complaint to address the judge's findings. The judge gave Apple 35 days to file a second amended complaint, and Duffy set a status hearing for April 21.
Representing Apple in the matter are lawyers from the firm of McDermott Will & Emery LLP, of Chicago and Washington, D.C.