Apple will begin tacking on the city of Chicago’s so-called “Netflix tax” to the bill paid by subscribers to Apple streaming services and products in September.
And City Hall has agreed to not seek to go after Apple in court for as much as four years of back taxes it could claim Apple owes, under a settlement agreement ending Apple’s legal challenge to the city’s extension of the so-called “amusement tax” to streaming entertainment services.
Apple and the city of Chicago had tussled in court over the tax since Apple filed suit in 2018.
The lawsuit challenged Chicago’s city ordinance imposing a 9% “amusement tax” on subscription streaming entertainment products, such as those offered by Netflix, Hulu and Apple, among others.
According to an analysis completed by Bloomberg, the city collects as much as $30 million per year from the streaming services amusement tax.
Apple’s lawsuit had followed attempts by others to challenge the tax.
Apple and other challengers claimed the city’s tax violated the Internet Tax Freedom Act. Apple also added claims under the Illinois state constitution and the U.S. Constitution’s commerce and due process clauses.
Apple specifically claimed the way the city applied the tax was unconstitutional.
Courts, however, took a dim view of Apple’s arguments, finding Apple’s complaint “lacking” the specificity needed to set out an “as applied challenge” to the tax’s constitutionality.
A Cook County judge dismissed Apple’s complaint without prejudice, giving the company the opportunity to amend their lawsuit and try again, if they wished.
Apple, however, opted to settle with the city and drop the challenge.
A spokesperson with the city of Chicago declined to discuss the settlement terms at the time the settlement was announced and accepted in court in late July.
The Cook County Record, however, obtained a copy of the settlement agreement from the city under the Freedom of Information Act.
The settlement indicated Apple had collected the city tax since July 2021 on its Apple TV+ and Apple Fitness+ products sold to customers with Chicago billing addresses.
However, under the settlement, Apple will also begin collecting that tax from its Chicago customers subscribing to its Apple Music and Apple Arcade products, as well as all Apple products, except Apple News+ and video rentals and “streaming third-party services,” effective Sept. 15.
In return for Apple dropping the legal challenge, the city agreed to release Apple from “any and all Amusement Tax liability, including any additional tax, interest or penalties, for all periods prior to September 15, 2022.”
The settlement does not estimate how much money the city may believe Apple may have owed for past unpaid amusement tax.
In the settlement, the city said the loss of any such past revenue is acceptable because “the City stands to derive substantial revenue it otherwise might not collect without this Agreement” and to avoid future costs associated with litigation.
Both parties also agreed to drop any disagreement over “whether what Apple sells is properly characterized as a product or a service,” a legal question that could have proven key in any litigation over the tax.
Apple has been represented in the action by attorney Catherine Battin, and others with the firm of McDermott, Will & Emery, of Chicago.