Fatally Flawed? Illinois Municipal League’s Model Streaming Subscription Tax

The Illinois Municipal League (IML) represents the interests of 219 home rule municipalities in Illinois.[1] The IML recently released a revised draft model, “Municipal Streaming Tax Ordinance,” (the model) for use by the home rule municipalities in imposing an “amusement tax” on, inter alia, music and video streaming services and online gaming.[2] If the subscriber’s residential street address is within the corporate limits of the municipality, the subscription fee would be subject to the tax.[3] However, the tax proposed by the model has at least two fatal flaws: it is barred by the Internet Tax Freedom Act (ITFA) as a discriminatory tax on electronic commerce and is an unconstitutional extraterritorial tax under the home rule article of the Illinois Constitution.[4]


The model proposes a tax on the privilege of viewing an amusement, including electronic amusements that either “take place within the” municipality or are delivered to subscribers “with a primary place of use within the jurisdictional boundaries of” the municipality.[5] The model incorporates the definition of “place of primary use” from the Illinois Mobile Telecommunications Sourcing Conformity Act.[6] That statute requires sourcing to the subscriber’s “residential street address.”[7] The streaming tax operates like a familiar sales tax in that it is imposed on the subscriber but collected by the streaming provider and remitted to the municipality.[8] The model tax would also be imposed on “paid television programming” (sat TV), but not paid radio programming (sat radio), transmitted by satellite.[9] The tax is not imposed on transactions that confer “the rights for permanent use of an electronic amusement” on the customer.[10]


There are many service providers that allow internet access to the databases of music, videos and games (content). Customers typically enter into an automatically renewing subscription agreement with the provider that allows access to a database such that the subscriber can “stream” the content from any fixed or mobile device with internet connectivity. Subscribers are able to access the content from anywhere at anytime so long as their subscription is current and they have internet access.

Because the subscription fees are paid in advance, there is no way for either the provider or the subscriber to know where and when the subscriber might access the content, if at all, during the month. Also, because the streaming tax proposed under the model is on the subscription fee, the tax must be collected before any streaming occurs. It may be that the subscriber doesn’t access the content either from within the corporate limits of the municipality or at all during the subscription period.


1. Barred Discriminatory Tax on Electronic Commerce

The ITFA generally bars state and local taxes that discriminate against electronic commerce.[11] A tax discriminates against electronic commerce if it is imposed on transactions that occur over the internet but not on similar transactions accomplished through other means.[12] For purposes of the ITFA, the term “tax” includes an obligation to collect and remit a sales tax.[13] “Electronic commerce” means “any transaction conducted over the Internet.”[14]

The 1996 amendments to the Telecommunications Act generally exempt direct-to-home satellite service providers from the obligation to collect and remit local sales taxes on their subscription fees.[15] This provision would bar the ability of any municipality that adopted the model from requiring that direct-to-home satellite providers of television programming collect and remit the proposed tax.

As noted above, the model does not appear to propose imposition of its tax on sat radio subscriptions. Sat radio is similar to audio streaming, a service specifically included in the tax. Because the tax would be imposed on audio streaming subscriptions and not sat radio subscriptions, the tax would discriminate against electronic commerce and thus be barred by the ITFA.

Similarly, any municipality would be barred by the Telecommunications Act from requiring the collection and remittance of the tax on sat TV subscription fees. Sat TV is similar to video streaming. Because the tax collection and remittance requirement would be imposed on video streaming subscriptions and not sat TV subscriptions, the tax would discriminate against electronic commerce and thus be barred by the ITFA.

The model would only impose tax on the rental of an amusement if it was electronically downloaded; it would not impose tax on the rental of a movie DVD, an audio book on CD or a video game on disc, all of which are available for delivery by mail. Thus, with regard to all forms of streaming, be it audio, video or gaming, rentals of music CDs, video DVDs and computer games on a disc, no tax is imposed. Because similar content is available for rental free of the streaming tax in non-electronic forms, imposition of the model tax on music, movie and video game streaming would be a barred discriminatory tax on electronic commerce.

Municipalities might think an Illinois court in Labell already found a municipal streaming tax similar to that proposed by the model is not barred by the ITFA as a discriminatory tax on electronic commerce.[16] However, that case involved claims that internet music and movie streaming services subject to the tax were similar to coin-operated juke boxes and video booths, claims the court quickly shot down, citing “real and substantial difference” between them. That case did not involve claims encompassing non-taxable, non-internet-based services, such as those delivered by satellite or available on disc, which lack any real or substantial difference with taxable internet-based services.

Clearly, the streaming tax proposed by the IML’s model ordinance would be barred as a discriminatory tax on electronic commerce. Illinois home rule municipalities should think twice before considering its adoption.

2. Unconstitutional Extraterritorial Tax under the Home Rule Article of the Illinois Constitution

It is axiomatic that home rule municipalities have no jurisdiction beyond their corporate limits except what is expressly granted by the legislature.[17] There is no question that home rule municipalities have the power to tax amusements so long as the amusement occurs within the municipality’s corporate limits.[18] Municipalities, without legislative authorization, are not permitted to extend their tax to amusements that occur outside their corporate limits.[19] The fatal flaw with the model tax on streaming is its presumption that the tax applies if the subscriber’s “primary place of use” is within the municipality’s corporate limits. The model defines “primary place of use” as the subscriber’s residential street address. If the subscriber’s residential street address is within the corporate limits of the municipality, then the tax applies to the subscription.

The model borrows the “primary place of use” and “residential street address” constructs from the Illinois Mobile Telecommunications Sourcing Conformity Act, which applies to mobile cell phone subscribers who use their mobile calling services while traveling between taxing jurisdictions and is the State of Illinois’s implementation of the federal Mobile Telecommunications Sourcing Act (MTSA).[20] Prior to the enactment of the MTSA, back in the day when cell phone calls were billed by the minute, localities claimed the right to impose local taxes on the portion of a call that occurred in their locality, which put an impossible burden on cell phone service providers to track, tax and bill each call. The MTSA, by legislative fiat, gave the jurisdiction of the subscriber’s place of primary use sole jurisdiction to tax the subscriber’s cell phone usage no matter where in the country or within a state it took place and, concomitantly, took that power away from all other jurisdictions.

Illinois’s implementation of the MTSA had the effect of giving, to the localities of the cell phone subscriber’s place of primary use, taxing power over calls that took place in other localities, thus allowing the primary use jurisdiction the right to tax activity that took place outside its corporate limits. There is nothing in the Illinois Mobile Telecommunications Sourcing Conformity Act that gives localities the power to tax other activities, such as amusements, that occur outside their corporate limits.

The provision of mobile telecommunications services is closely analogous to video and audio streaming and online gaming services, which are the subject of the model’s tax. Internet streaming and online gaming can be had on the very same devices capable of making and taking cell phone calls. They are completely portable and there is every expectation of mobility by both the provider and the subscriber. Without something like the Illinois Mobile Telecommunications Sourcing Conformity Act statutorily applicable to mobile streaming and online gaming, which takes the nuances of those business models into account, the tax envisioned by the model ordinance cannot be applied to subscriptions. Municipalities may not by ordinance give themselves the extraterritorial taxing authority the Illinois Constitution says must be authorized by the legislature.[21]

Here, the model proposes to tax amusements on the presumption they all will take place at the subscribers’ primary places of use (i.e., at their residential street address). However, the streaming and online gaming subscriptions are all billed in advance before any amusement has occurred, may never occur and, if it does, may never occur within the boundaries of the municipality. Amending the model ordinance to make this presumption rebuttable would not make it so. Providers must collect the streaming tax at the time of payment of the subscription fee before any amusement that might be subject to the tax has occurred and before any evidence of place of actual use has come into existence. Under these circumstances, any rebuttable presumption the amusements occurred within the municipality will, in practice, always operate as a conclusive presumption.

The ability of a locality to base an amusement tax on primary place of use by analogy to the Illinois Mobile Telecommunications Sourcing Conformity Act was not raised by the plaintiffs in Labell. However, Illinois law on the extraterritorial effect of local taxes is strong and a court would have difficulty getting around the requirement that there be statutory authorization for such. Any municipality considering enactment of a tax ordinance based on the model faces substantial risk of it being invalidated, exposing its treasury to tax refunds.


As described, the streaming tax proposed by the IML suffers fatal flaws. Municipalities considering enacting a tax based on the model should carefully consider the infirmities identified in this article and seek advice of counsel on other possible US and Illinois constitutional weaknesses.


[1] Home Rule Municipalities (iml.org)

[2] Updated-IML-Revised-Model-Ordinance-Municipal-StreamingTax.docx (live.com) Article I, Sec. 2,A.4.

[3] Model § 3.1.C, 35 ILCS § 638/10.

[4] ITFA §1101(a)(2), 47 U.S.C. § 151, Note, Ill. Const. 1970, art. VII, § 6.

[5] Model § 3.1.A.

[6] Model § 3.1.C.

[7] 35 ILCS § 638/10.

[8] Model §3.4.

[9] Model §2.A.3.

[10] Model § 3.1.A.

[11] ITFA § 1101(a)(2).

[12] ITFA § 1105(2)(A).

[13] ITFA § 1105(8)(A)(i).

[14] ITFA § 1105(3).

[15] Pub. L. 104–104, title VI, §602, Feb. 8, 1996, 110 Stat. 144 , 47 U.S.C. §152, Note.

[16] Labell v. City of Chicago, 2019 IL App (1st) 181379.

[17] Labell, supra at ¶ 25.

[18] 65 ILCS §5/11-42-5, Labell, supra.

[19] Hertz Corp. v. City of Chicago, 2017 IL 119945, at ¶ 14.

[20] 4 U.S.C. § 116.

[21] Hertz, supra at ¶ 14, Labell, supra at ¶25.

Stephen P. Kranz
Stephen (Steve) P. Kranz is a tax lawyer who solves tax problems differently. Over the course of his extensive career, Steve has acquired specific skills and developed a unique approach that helps clients develop and implement holistic solutions to all varieties of tax problems. He combines strategic thinking with effective skills for the courtroom, the statehouse and the conference room. Read Stephen Kranz's full bio.

Mark Nebergall
Mark Nebergall advises clients on all aspects of tax policy with respect to software transactions at state, federal and international levels. He also works with McDermott’s tax controversy team handling tax litigation where he brings his former experience as a litigator for the US Department of Justice, Tax Division. Mark combines tax policy and tax litigation skills to help solve client tax problems holistically. Read Mark Nebergall's full bio. 

Catherine A. Battin
Catherine (Cate) A. Battin represents clients in state and local tax controversies at the audit, administrative and judicial levels in numerous jurisdictions. She provides national state tax strategies for clients on a full range of state tax issues, including income tax apportionment, nexus, combination and sales tax characterization of products and services. She has defended numerous internet sellers in cases brought under the Illinois False Claims Act alleging fraudulent failures to collect and remit use tax. Read Catherine A. Battin's full bio.

Jonathan C. Hague
Jonathan C. Hague focuses his practice on state and local tax matters. He assists businesses and individual taxpayers with state and local tax controversies, compliance and multistate planning opportunities across a variety of tax types, including income, sales and use, and tax credits. Jonathan also works closely with several of the Firm’s taxpayer coalitions focused on specific state tax policy issues such as the taxation of digital goods and services. Read Jonathan Hague's full bio.




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