Taxpayers providing services over the internet need to carefully consider two recent City of Chicago rulings: Lease Transaction Tax Ruling #12 and Amusement Tax Ruling #5. Issued together on June 9, 2015, the rulings extend a 9 percent tax to most services provided online. Charges for video streaming, audio streaming, computer game subscriptions, and other forms of online entertainment are subject to the 9 percent amusement tax. Charges for essentially any other kind of interactive website or online service, with only a handful of exceptions, are subject to the 9 percent lease transaction tax. The lease transaction tax is supposed to be a municipal sales and use tax on the leasing of tangible personal property, but the City is stretching the tax to encompass the deemed use of the provider’s computer in accessing a website or program over the internet. As detailed in this On the Subject, providers of information services and cloud-based services need to evaluate the applicability of the City’s guidance and consider whether to comply or challenge the imposition of tax.
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