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ILLINOIS
BILL WOULD EXPAND CHICAGO’S ‘NETFLIX TAX’ STATEWIDE
Illinois Policy Institute/
Vincent Caruso
Lawmakers in the Illinois House are
weighing a bill that would tax streaming and satellite service users
“for the privilege to witness, view, or otherwise enjoy the
entertainment.”
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 Illinoisans who stream movies on Netflix, watch satellite TV or
listen to music on smart speakers may need to pay a state tax to enjoy them.
House Bill 3359 would create the “Video Service Tax Modernization Act” and
“Entertainment Tax Fairness Act,” which would impose new taxes on satellite and
video streaming service providers and subscribers. Users of those services would
pay a 1 percent tax “for the privilege to witness, view, or otherwise enjoy the
entertainment,” while companies would pay a 5 percent tax on their gross
revenues.
Consumers could bear the brunt of both new taxes, as companies pass along the
tax costs by charging higher prices.
Chicago currently stretches the definition of its 9 percent citywide “amusement
tax” to include online streaming services such as Netflix and Spotify, as well
as Playstation rentals.
 The legality of Chicago’s “Netflix tax” is dubious. The Liberty Justice Center,
the Illinois Policy Institute’s litigation partner, sued the city on behalf of
streaming service customers in 2015, after the expansion of the tax to online
services went into effect. The city tax was previously applied only to ticketed
live entertainment performances and events.
The Center argued expanding the tax to online services violates the 1998
Internet Tax Freedom Act, a federal law. The Act prohibits taxes that
discriminate against electronic commerce levied by any government body,
including state governments, suggesting Illinois could expose itself to similar
legal risks should HB 3359 become law.
A circuit court judge ruled in the city’s favor in May 2018, upholding the
expansion of the amusement tax, and the Liberty Justice Center is currently
appealing the case before the 1st District Appellate Court.
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The new taxes included in HB 3359 are only the
latest in a string of proposed tax hikes by state leaders. Gov. J.B.
Pritzker’s proposed budget for fiscal year 2020 includes a range of
new and increased taxes and fees totaling $4.5 billion. The budget
includes the first statewide plastic bag tax and a new tax on
e-cigarettes, as well as tax hikes on cigarettes, video gambling and
Medicare providers.
State lawmakers are also proposing to double the state’s gas tax,
which would bring Illinois’ gas tax to second-highest from
10th-highest in the nation.
Illinois’ overall tax burden currently ranks highest in the nation,
according to one analysis. Despite the state’s host of high taxes,
Illinois’ inability to control its spending has resulted in $134
billion in government worker pension debt and a nearly $8 billion
backlog of unpaid bills.
On March 26, state Sen. Dan McConchie, R-Hawthorn Woods, introduced
a constitutional amendment that would require a supermajority vote
in both chambers to raise taxes – a measure that would encourage
lawmakers to explore needed structural reforms before asking more of
overburdened taxpayers.
Absent serious pension reform, HB 3359 – like each tax increase
before it – will fail to revive the state’s dismal fiscal condition.
HB 3359 is currently in the Sales, Amusement & Other Taxes
Subcommittee and is on the calendar for a March 28 hearing.
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