Netflix
IN PHOTO: The headquarters of Netflix is shown in Los Gatos, California in this file photo taken September 20, 2011. Netflix Inc reported higher profit that beat Wall Street expectations for the quarter that ended in March, boosted by the addition of 2.25 million customers to its movie and TV streaming service in the United States. REUTERS/Robert Galbraith/Files Reuters

Chicago citizens have filed a lawsuit against the city government over a new nine percent tax that also covers cloud based technologies. The new tax took effect last July and is part of the city’s policy “Amusement Tax Ruling”.

The city government expanded the interpretation of the existing property lease and amusement taxes to now include cloud-based technologies such as those provided by Netflix and Amazon.

The lawsuit filed last September 9 alleges the Chicago streaming tax violates the Internet Tax Freedom Act that explicitly prohibits cities and states from imposing unfair Internet-only taxes. On the other hand, the city says it is willing to resolutely fight the lawsuit, said The Chicago Tribune.

According to a blog post by local law firm ReedSmith, the law now covers SaaS (software as a service), PaaS (Platform as a Service) and streaming media services. It applies to events like shows, baseball games, and online services.

Fortune reported the new tax comes at a time when local tax jurisdictions are losing sales tax income from traditional brick and mortar stores. Because of the difficult circumstances, the city government has zeroed in on the booming cloud services industry, which presents a tempting target to make up the budget deficit.

The city of Chicago, however, refuses to acknowledge the new tax policy is an expansion of existing laws on property leases and amusement taxation. In response to the new tax that imposes an additional surcharge on various online services, Netflix is looking for ways to pass on the cost of the levies to its Chicago subscribers, reported The Verge .

“Jurisdictions around the world, including the US, are trying to figure out ways to tax online services,” said Netflix spokeswoman Anne Marie Squeo to Ars Technica . She added that passing the additional surcharge to company’s subscribers is one of its ways to deal with it.

City Of Chicago Sued Over 'Netflix Tax' (Credit: YouTube/Chat Tiest)

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