On June 9, the City of Chicago released a tax expansion ruling to include streaming and cloud-based data in its 9 percent gross receipt tax.
Effective July 1, the “clarification” has technology companies, lawmakers and housing market experts in the city scratching their heads, wondering what the ruling covers and how much of an impact it could have.
According to the Personal Property Lease Transaction Tax Ruling document, data or information that is retrieved for consumer use is taxable. The document goes on to list those items, which include real estate listings and prices, plus legal research, consumer credit reports, marketing data, job listings, resumes, economic statistics and weather statistics — essentially, the ruling covers any data pulled from a cloud.
This tax ruling should have already been in place to regulate cloud-based services the same way brick-and-mortar services are regulated, according to officials. A portion of it, ruling No. 5, specifically targets streaming services like Netflix and Spotify, but ruling No. 12 says the tax covers “anything that is streaming.”
Brian Bernardoni, the senior director of government affairs and public policy at the Chicago Association of Realtors, told Inman that lawmakers, attorneys and association groups are putting out different interpretations of how this could be put into effect, which are being analyzed closely in real time to determine the true impact.
Questions like who pays, how is it paid and how will it work are still very much up in the air.
“Everybody uses the cloud. There seems to be a lot of unintended consequences of the tax. It doesn’t wrap up in a neat bow,” Bernardoni said. “Realtors should account for their cloud-based services and start examining what a 9 percent increase would look like way beyond the MLS. This is expansive because it’s a tax on cloud-computing software.”
The ruling did not go through legislation; it is simply an interpretation of a tax that’s existed in Chicago since the 1990s.
Some Chicago dwellers are concerned that the tax could be retroactive to the date of the ruling; however, it’s also unclear whether the tax is based on subscriptions or data bandwidth.
“We believe, based on multiple legal sources, that this tax ruling has exposure to potential legal challenges,” Bernardoni said. “Our intention is to report to the membership as frequently as qualified information becomes available.”
The city publicly released the goal to hit $12 million in taxes through the ruling, a figure that Bernardoni believes is incredibly low. Based on the ambiguous language of the ruling, it has the potential to bring in a significant amount of funding, similar to that of telecommunication tax.
The state government cannot interfere in Chicago because it is a “home rule” city, and the region is certain to be the center of cloud-based taxation attention until the kinks are worked out.