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Chicago is in the hole for nearly thirty billion dollars. They have been floating the idea of a ten billion dollar bond with the debt structured in a way which lets current politicians escape the fallout from its payment and not having to raise property taxes. The state of Illinois is not well off either with debts estimated at the low of one hundred thirty billion to two hundred fifty billion. An Illinois proposal just to fix state pensions would result in a forty four percent property tax increase for thirty years.

Chicago has a narrower group of people to draw from so besides tourist and sin taxes they have to go after any product consumed by residents of the city and that includes digital.

Why is this all happening, because there is a well hidden largess in government employee payroll and worse in their pension system. Illinois alone is estimated to have over twenty three thousand retirees pulling down one hundred thousand dollars a year or more. A lot of this is from the higher end positions in city and county governments but you can find police and fire there too.

People complain about the disparity in corporate executive level pay to employee should also take a look at the disparity between the same in state and city governments let alone the disparity in retirement to even every day workers in the state. A 100k retirement not counting full benefits is equivalent to nearly forty eight dollars an hour.

So expect more digital taxes in your future.

PS: the Chicago debt is only for pensions, they are down tens of billions more in deferred maintenance and similar debts.

Do the employees and employers not pay into a separate fund that cannot be touched? I fail to see how it's the fault of the pensioners. It's absolutely archaic if the future taxpayers have to pay for a retirees pension. In Canada we have pension funds that are separately funded entities that are payed into over an employee's career.
Pulling or cutting the pensions of retired public service workers (many of whom who risked their lives to protect the public) would, beyond the ethical questions, eliminate the credibility of the city's promises to those who sign up for such jobs and hence would likely greatly reduce the quantity and quality of recruits.
How can you be in debt for pensions of all things.

Get employee. Put money in pension fund. Let fund grow. Wait 20 years earn interest and pay employee.

end.

What you are describing is gross mismanagement of funds, and blaming the rightful recipients of funds for the existing.

$75k income, increasing at 1% a year, saving 15% each year, investing at 7% average returns over a 40 year career would give you $101k in retirement.

That doesn’t seem unreasonable.

Could they raise more money by locally legalizing more "sins" and heavily taxing them? Something of a cross between Las Vegas and Colorado could pull in a lot of revenue.
Hopefully the Fed can inflate away >50% of real pension liabilities.
God I need to sell our apt. in Chicago...
> So expect more digital taxes in your future.

This is not a problem that will be solved with taxes, it will be solved with a global reset, and those are usually accompanied by major wars. This is not a Chicago problem, an Illinois problem or even an American problem.

For what it's worth - the title is a bit misleading.

The tax began its life as an extension/adaptation of an existing 9% "amusement tax" on patrons of amusements (movie theaters, bowling alleys, etc) in the city. But until 2015 it only included physical businesses, not any of the new online replacements. The definition is now expanded to include online games, streaming movies, movie tickets sold online, etc.

Also, this has been in effect for a while now (e.g. my Netflix bill went up by $0.99 a year ago) and all the various online businesses have already implemented it. Not sure why the article is bubbling up now, just as the new mayor is about to take office. :)

For more history see https://www.forbes.com/sites/kellyphillipserb/2018/05/29/chi...

OK, we've switched to the HTML doc title above, which isn't Netflix-specific.
I was under the impression it was because the city finally collected on it, but I might be wrong.
This stuff makes sense for cities, it’s just frustrating how much more difficult it makes it to operate a “mom and pop” software business. The complexity of potentially complying with hundreds of state and municipal governments - not where you are located but where online purchases originate - is a pretty significant deterrent to setting up a small side business. Imagine if every food truck had to pay taxes based not on where the truck is, but where the customers were from.

On the other hand, this is an obvious opportunity for payment processors to automate. I’m surprised sales tax still isn’t built in to stripe, for example.

It was only recently added to SmugMug's processing.

Having owned two businesses, I can say it's a lot more complicated than most people realize. Tax rates and reporting don't fit neatly into city, state, or even simple ZIP Code boundaries. Plus different products, even sold from the same food truck to use your example, can have different tax rates.

The whole retail taxing system is a mess.

That sounds like a good reason for the federal government to regulate interstate commerce, such as by preventing local governments from establishing such obstacles. Constitutional jurisprudence has discovered the most amazing powers hidden in the emanations and penumbras of that clause, but sometimes it would also be useful to look at its plain meaning.
> The complexity of potentially complying with hundreds of state and municipal governments - not where you are located but where online purchases originate - is a pretty significant deterrent to setting up a small side business.

Check out Avalara and TaxJar. They're not 'built in to Stripe' but have hundreds of integrations with WooCommerce, Shopify, and more.

This just opens up space for a business to calculate these fees as part of a SaaS offering. For example Avalara already has a product that can calculate the thousands of different sales taxes that exist in the US. The internet opens up a huge market to mom and pop software companies, I don’t see why we need any special tax cuts or holes for us.
You don't reside there, you're not liable to abide by their laws. I run a small US company, I don't have to comply with GDPR for example. Same applies here.

I don't see why any company would implement this, perhaps appeasing regulators at the federal level.

It seems odd that this is referred to as the “Netflix” tax while most of the money has been collected from Eventbrite and Fandango, both of whom sell tickets to events physically happening in Chicago and both of whom would already be subject to a variety of other locality taxes as a result.

Even Netflix charges sales tax (or VAT, such as in Europe) in locations that require it (based off your billing address), so I find it hard to see this kind of thing as anything more than greedy governments taxing something simply because they can and know it’s big money.

In Chicago's case, the tax is more about desperation than greed. But yes, greed is what got that city's government where it is today fiscally.
Hate it. There's nothing wrong with taxes, but this kind of tax is onerous. It adds a shit ton of overhead if you have to maintain tax rates for every municipality in US, or the world. This is where I wish government would figure something else out. Have one state or (preferably) federal agency levy one tax, and then figure out how to disperse the collected income to municipalities - instead of each municipality creating its own tax for specific online goods. It just sucks.

And by the way, big companies will figure it out because they have entire departments to deal with garbage like that. It's the small companies that suffer from this bureaucracy.

It's not hard to "figure something else out"; this problem became a political issue in Australia in the 1980s and was finally solved with a federal goods and services tax in 2000, the proceeds of which are distributed back to the states by an apolitical bureaucracy. There are no more local or state sales taxes. I am sure other countries have found similar solutions. The difficulty is overcoming the political and constitutional barriers to further consolidating federal power in the United States.
All taxes can be consolidated into one tax, Wealth tax! which can directly account for everything. i.e. Live in NYC vs suburbs. Got 5 kids vs single. No income, sales, federal, city, county, state, capital, property, SS... list goes on. If you're rich you pay more if you're not you don't. How do you know how rich someone is? Total wealth. Federal government should ban any other taxes that state would want to implement
I thought the main reason states collect tax on Amazon purchases is because they have a presence in a state (distribution centers, warehouses, etc)?

I'm confused how the legal thinking goes that a company not based in Chicago, offering services on the internet, can be taxed.

(They don't even ship DVDs to most customers, whereas Amazon was shipping physical goods)

South Dakota v. Wayfair [1] last year overturned the requirement of a physical presence for a state to levy taxes.

Most states with sales tax have since passed legislation to tax online purchases.

[1] https://en.wikipedia.org/wiki/South_Dakota_v._Wayfair,_Inc.

edit: It seems as though HN's linkification drops trailing periods, so that link doesn't work when clicked.

It's an entertainment tax. Netflix supplies entertainment to people in the city of Chicago, and so the city of Chicago taxes that entertainment.

Same thing with concert tickets and other forms of entertainment.

I think that has to be overturned with the way companies are consolidating to costal cities, else in the long run there won’t be tax collected at all.
Instead of trying to tax purely digital activities, why not just raise the income/property taxes on the people who live or work in your city? This would be a lot less regressive, and would prevent people from getting around it just by changing their credit card billing address. Not to mention the beauracratic nightmare of requiring SaaS companies to keep track of every customer's physical address and local tax regulations.
Because raising progressive taxes that are already high make it likely you’ll trigger a death spiral where high earners flee, raising the taxes you need to levy on the rest, etc.
Because it's easier politically to implement regressive taxes. Property owners in particular are politically powerful and sympathetic. They're also very motivated because the tax increases would be large and these folks are highly leveraged in their investment. So we get things like Prop 13 in CA, or property tax increase caps in NY.
Basic question: what is the legal basis for cities to tax something? I understand physical goods sold within a city benefited from infrastructure and security the city government offers, and agree to a tax on them.

But digital goods and services? The city already taxes internet connectivity, property tax, ... Taxing digital goods further is just double taxation, with no benefit provided in return by the city to the consumer, or producer of digital goods

They derive their right to tax as recognized entities from the states wherein they are incorporated. There is no limit to what they can tax according to their charter, as long as no higher jurisdiction forbids it.
Again only tax that should exist is wealth tax. Otherwise you can create as many taxes out of thin air as many words one can think. This complexity has real cost to entrepreneurship and thus GDP. Simple progressive ONE wealth tax can account for all matters indirectly. Funny for country founded because of taxes to have dozens on dozens of taxes, an entertainment tax? Really?

If you live in SF and make 90k you're taxed the same if you made same amount in North Dakota somewhere. Make sense??? One is touching upper class status wise and other is one less paycheck away from being homeless.

Right now we have income, capital, sales, bunch of business taxes, ... Each state City county has its own rate. Whenever it comes to taxes we seem to accept everything, it's taboo subject to talk negatively about any aspect of it despite there being real inefficiencies and better alternatives

Maybe instead of putting on a show in court, Netflix et al should simply stop asking people for their physical addresses? I mean, that is the underlying vulnerability that will allow this push to succeed.

We were so excited for the promise of the Internet to overturn all this legacy bullshit. Then the legacy bullshitters got here, built a bunch of proprietary services on top of HTTP, marketed them as progress, and are slowly reimplementing the status quo!

The Internet option, piracy, has been here the whole time. It's just "inconvenient" people say, as they repeatedly complain about new inconveniences caused by centralized services. In reality, it's simply the poverty mindset - a little bit of self-actualizing work today would pay off tenfold down the road.

I look forward to the next phase of storage getting cheap enough, along with streaming services fragmenting themselves, that it becomes trendy to trade USB keys with friends.

> Maybe instead of putting on a show in court, Netflix et al should simply stop asking people for their physical addresses? I mean, that is the underlying vulnerability that will allow this push to succeed.

> We were so excited for the promise of the Internet to overturn all this legacy bullshit. Then the legacy bullshitters got here, built a bunch of proprietary services on top of HTTP, marketed them as progress, and are slowly reimplementing the status quo!

I don't understand your point. The tax Chicago is trying to impose has nothing to do with Netflix's service being proprietary. The tax would still be charged even if their service were built entirely out of free software and all they streamed was public domain material, as long as they charged for the service.

>Maybe instead of putting on a show in court, Netflix et al should simply stop asking people for their physical addresses? I mean, that is the underlying vulnerability that will allow this push to succeed.

That's an interesting point. There are internet services that don't require an address to pay for something. What are their legal obligations, if any, with respect to local taxes? I assume quite a few local laws don't explicitly make this a loophole, so does that mean anyone doing business online has the legal obligation to collect address information? That would be an odd situation, and it doesn't seem to be the one we're in.

It seems like the situation on the ground is that in reality only companies big enough to attract attention are at risk from this. My understanding of the legal situation is that the federal government in the United States provides the legal basis for ensuring that a business in one state or city abides by the laws of another state or city when it sells to its residents. But they seem uninterested in actually enforcing this.

It's interesting to think about what would happen to companies of various sizes should they refuse to implement this tax. Small / medium size companies? Probably nothing. In fact it's unlikely that many of them will implement it. Suppose Netflix refuses; it now becomes illegal for Chicago residents to purchase Netflix subscriptions (unless they have some mechanism for the citizens to pay the taxes themselves, as some states do; this usually doesn't happen though). But Netflix can say "no problem", we just make web servers available over the Internet, we don't check whether someone's logging in from Chicago. What does Chicago do? They either ban the Netflix domain at the local internet level, or (more likely) they get the Federal government involved and have fines put in place to penalize Netflix for not paying taxes to Chicago.

I'm not a lawyer though, and it would be interesting to get one's point of view of one here since questions about jurisdiction come up here all the time, e.g. whether US companies have to comply with EU laws.

Netflix: We don't know where any of our customers are, sorry Chicago!

Chicago: Okay fine we talked to all the local ISPs and you're no longer accessible in our city. Have a nice day.

or

Chicago: We didn't fall off the turnip truck yesterday guys, have you heard of this thing called GeoIP services?

Besides, I'm sure Netflix is bound by all kinds of territory-based licensing to need people's addresses. Like if Foobar Productions did a deal with someone else for exclusive digital rights to Austria and Australia but is letting Netflix license their show for streaming everywhere else, Netflix needs to be able to not show it to the Austr(al)ians.

You need to provide a physical address to pay with a credit card.
I love Chicago, but its basically bankrupt. They can raise taxes all they want, but they won't be able to raise enough to cover the problems they've created.
So how does a business actually deal with collecting and remitting this? Is it a special case they have to deal with separately from sales taxes, or is it treated like a sales tax? If it is a sales tax, do the sales tax service companies like Avalara and TaxCloud and Savos handle it for you as long as you set the right tax code [1] for the item?

[1] Sales taxes often vary depending on the type of good. E.g., some states might charge a different rate for food ingredients than they do for prepared food, or for food sold through a vending machine. The tax service companies assign a code to each category of goods that might have a different tax rate so that when you ask them to computer tax on an order you can supply the appropriate codes for each line item so they can compute the right tax.

Sales tax should be earned by a state, as a way to finance the services they provide to businesses that sell products within their state. I say earned, because if it's the tax is not worth the benefits, new businesses will locate elsewhere. It's reasonable that business pay for the emergency services, roads, infrastructure, etc. that they use. Streaming service sales do not in any way increase the costs faces by a locality, so they shouldn't be taxing it. If Chicago wants to tax companies like Netflix they should convince them to locate there.
Successfully taxes streaming services? Shiiit, there's no such thing as successful taxation in Chicago. The city and it's crook county are corpses.
Chicago is a financial disaster and it's dragging Illinois into the fire. The situation is worse than detriot before it's bankrupcy.

It's so bad that illinois is the only state in the union with a negative population growth. And, doubly, the only state to have that honor several years in a row.

The debt is unsustainable and they tax everything. Just a few years ago they started taxing soda cans, and hybrids since "they don't pay as much gas tax".

They may have successfully taxed streaming but it's just another example of how incredibly desperate they are.

Illinois is drowning under pension promises from their massively bloated government. Enough that every Illinois citizen owes something like $20,000 to the state pension systems. They're squeezing money from stones

> Chicago is a financial disaster and it's dragging Illinois into the fire.

Cook county (Chicago) and the 5 suburban counties contribute more revenue to the state coffers than the entire rest of the state combined. The rest of the state receives a higher share of that revenue than Chicago and its suburbs (ie - they get more than they put in). [1]

> The situation is worse than detriot before it's bankrupcy.

Highly subjective, but having personally lived in the Detroit area before its bankruptcy - and currently living in Chicago now - I disagree.

> It's so bad that illinois is the only state in the union with a negative population growth.

Not so. Multiple states have experienced negative population growth year over year; and multiple states had experienced it multiple years in a row. [2][3][4][5]

Your comment is demonstrably, factually incorrect. Please support your opinions with facts, or label them as your own opinions.

1. https://opensiuc.lib.siu.edu/cgi/viewcontent.cgi?article=105...

2. https://docs.google.com/spreadsheets/d/1R7AN4o7m3coGcnWSJsKd...

3. https://www.census.gov/library/visualizations/2018/comm/popu...

4. https://www.census.gov/library/visualizations/2018/comm/popu...

5. https://www.census.gov/data/tables/time-series/demo/popest/2...

just make Netflix (and all video streaming services) illegal and force them to distribute their content through the cable network (a bit like it is illegal to create city fiber networks) /s
Would we ever see legislation that would require companies to not increase the cost of digital goods after a tax is instituted? Alternatively, could we not just have a fixed tax contribution on goods each year rather than making it piecemeal per digital good sold? I find it weird to tax goods unless the existence of the tax is to change behavior. (not sure if that is the goal here?)
The problem with that is that either a) you go under the margins and each sale is a loss, meaning that the company will offer no services at all; b) you stay under the margins, but not enough for the investors to keep investing (they expect higher profits elsewhere) and so the company now has no investors; c) you cut into the margin so much that it is not worth it for the company to continue developing new stuff.

In the case of c they will most likely continue to develop new stuff, based on their revenues elsewhere, but at that point the high tax areas are leaching of other low tax areas where the company can afford to fund innovation.

That assumes that you can find out when a company increase prices based on higher taxes, as opposed to anything else, which you cannot do.

The only real solution is to tell the retirees that they are not getting the money they counted on; that is hardly unfair as I am sure nobody here expects there to be any retirement funds for them, except what they can save up.