Chicago has become a pioneer in collecting tax revenue from digital entertainment like streaming videos and gaming.
The city has collected $2 million in tax from Sony, Eventbrite and Fandango, becoming the first large city to successfully tax digital streaming and service providers, Bloomberg reports.
The “Netflix tax,” as it is called, is a 9 percent sales levy on streaming entertainment that has already brought in $2 million to the city.
Chicago is believed to be the first major city in the country to collect taxes from online streaming services, and the Windy City may have paved the way for other cities and states to follow its lead.
Other cities and states are considering taxing digital services, as more and more shopping moves online.
Chicago has collected $1.2 million from Sony, on services including PlayStation Video live events and purchases of music and video. It also collected $800k from Eventbrite and $70,000 from Fandango. The levy has been dubbed the “Netflix tax” because it targets streaming video services in addition to gaming and other digital entertainment.
Online sales taxes are a source of revenue for states looking to boost revenue.
Rhode Island’s governor proposed a budget this year that includes new sales taxes on digital videos, books and music. Pennsylvania enacted a similar tax in 2016 and is set to start enforcing it this summer.
“Cities and states are beginning to experiment with this,” – said Mark Mazur, director of the Urban-Brookings Tax Policy Center,
“People are buying more and more services and less goods, so the sales tax pace is getting reduced, and you end up trying to find ways to raise revenue from services,” he added.
The U.S. Supreme Court last summer cleared a path for states to collect sales tax from online shoppers, ending a decades-old law that affected online sales. The court said in the South Dakota vs. Wayfair case that “the internet’s prevalence and power have changed the dynamics of the national economy,”
He also added that as sales taxes on services could increase, more companies would most likely raise the prices of their services, which trickle down to the consumer.
Experts say Chicago could rake in about $12 million a year, based upon estimates when they passed the levy in 2015. The potential downside for consumers is that companies could raise prices in response.
A lawsuit filed by a libertarian group on behalf of Netflix, Spotify and Amazon Prime customers is currently in the appeal stage.