Tax on cloud computing in Chicago

A new ruling in Chicago will enable cloud computing services such as those provided by Netflix and Apple to be taxed.

Chicago’s local amusement tax was extended from the beginning of July to include cloud-based content. Entertainment services such as Netflix can now be taxed when they are used by residents of the city and it is thought that this could add as much as $12m (£7.7m) to the city’s coffers this year.

There is some concern that the new ruling can be applied to general cloud computing services and experts will be watching developments in this field. The new regulations invoke the nonpossessory computer lease tax and can be applied to taxable leases on word processing, spreadsheet preparation and many other aspects of general computer usage. The wording specifies what comes under the umbrella of cloud computing, including software-as-a-service, hosted environment, platform-as-a-service, and many other titles.

An expert on tax litigation, Michael Wynne. believes that the tax regulations that have led to this ruling are flawed. The original legislation makes assumptions that are very different to the way in which services are delivered in the modern age and there is speculation that there will be an appeal against this ruling.

The ruling will only apply to Chicago-based service users, and the service providers will need to collect the tax money. Services that will not be taxable include storage services and access to read-only data.