A number of states already tax satellite and cable TV. Last month, the city of Chicago implemented what is, to the best of our knowledge, the first ever tax on Cloud computing services, including streaming audio and video and online gaming.

A New Revenue Stream

On July 1, Chicago implemented a 9 percent tax on all Cloud computing services used by city residents, which the city estimates will generate $12 million per year. It’s not a huge increase for individual users — HBO NOW, for example, jumps from $14.99 per month to $16.34 per month — but the more streaming subscriptions you have, the more you’ll pay.

While it will mostly affect users of services like Netflix and Pandora, it will also affect residents and businesses using Cloud storage or accessing online records databases such as real estate listings: any paid service in which users make a request or perform a search is taxable. Whether the tax could affect paid, streamed versions of cable TV channels made available through companies such as Sling or PlayStation Vue is unclear.

However, there are some clear exceptions. Streaming services supported by advertising won’t have to charge the tax. For example, those who listen to the free, ad-supported version of Hulu or Spotify won’t get charged, but those with paid, commercial-free subscriptions will. That also seems to mean that free services like YouTube won’t have to charge the tax, even if viewers are using ad-blocking software. In addition, the tax won’t extend to digital music and video actually purchased online, as through iTunes or Amazon.

What This Means for Consumers, Businesses, and Chicago

The city has given streaming providers until September 1 to begin paying the tax. The tax doesn’t explicitly require these providers to pass the tax on to their customers, but they will, of course: Netflix has already confirmed it will do so. If subscribers who object to the tax begin to cancel their accounts, streaming providers may choose to sue the city. And they may have a case: according to an article published by the nonprofit think tank the Brookings Institution, since this tax is online-only, it may violate the federal Internet Tax Freedom Act and thus be illegal. Other reputable sources, including the Wall Street Journal, also question the tax’s legality.

What streaming content providers and consumers fear is that the idea will spread. There’s no way to tell yet if it will, but it’s foolish to think other cities and states would be willing to tax satellite and cable but unwilling to tax streaming Internet content. This new revenue could prove especially attractive as a means of offsetting losses in cable and satellite TV tax revenue from cord-cutting households.

A number of outlets have pointed out that although the new tax may generate money from streaming subscribers, it may cost the city even more money. The tax could well prove a burden on young startups, many of which rely on streaming or Cloud services. It may prevent other such services from relocating to the city, and it could even cause some local businesses to move out of the city.

If You Can’t Beat ’Em

Chicago residents about to be taxed for their online streaming should at least get the most possible out of the experience. If your connection seems slow, look for faster plans available in your area. One of them may save you enough to pay for your new tax.

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