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Apple Will Begin Collecting Taxes from Chicago Customers After ‘Netflix Tax’ Settlement

David Satin

Chicagoans prepare, your Apple TV+ subscription is about to get a little bit more expensive. The company recently settled its lawsuit with the city of Chicago regarding the city’s Amusement Tax, and the terms of the settlement have become clear.

Apple will collect the excess revenue to pay the tax from its customers, ensuring that the tax will not affect its bottom line. That revenue collection will begin on Sept. 15. It is not currently clear how much each customer will have to pay, but Apple must collect enough to offset a 9% tax on its overall streaming service income from Chicago customers.

So far the tax will only apply to Chicago customers, because of the city’s unique law. Under that rule, tickets for recreational activities that are delivered electronically are accompanied by an additional fee. In 2015, that law was modified to include streaming services, in what has since been dubbed the “Netflix” tax.

Apple brought suit against the city in 2018, a year before the launch of Apple TV+. It first claimed that the law was a violation of the Internet Tax Freedom Act, a claim which was rejected in court. Apple then amended its complaint to suggest that the law was unconstitutional, but that contention was also denied.

The rulings and settlement could provide a roadmap for other cities and states to introduce similar taxes on streaming services. The streamers will surely make a hearty show of indignation on behalf of their customers when new taxes are proposed in other cities and states. But with companies like Netflix introducing new fees to stream on devices on the home and cracking down on password sharing, it’s clear that they don’t mind when customers have to pay more for their services. They’d simply rather be keeping that money for themselves, instead of having to pass it on to a city or state government.

The case could have immediate ramifications on a similar case currently proceeding in Texas. The Texas Public Utility Regulatory Act requires that video service providers pay a 5% franchise fee if the cables used to deliver their content lie in the public right of way. Several cities and municipalities are suing Netflix, Hulu, and Disney+ for not paying this fee. It may not take much longer to find out if Apple’s settlement with the city of Chicago is a precedent-setter.

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