[kictanet] Fwd: [Internet Policy] Chicago’s cloud tax

[Barrack Otieno]

Listers,

Interesting read.

Regards
---------- Forwarded message ----------
From: "Joly MacFie" <joly at punkcast.com>
Date: Jul 2, 2015 10:36 AM
Subject: [Internet Policy] Chicago’s cloud tax
To: "internetpolicy at elists.isoc.org" <InternetPolicy at elists.isoc.org>
Cc:

This could be an alarming development if it caught on internationally?

http://www.theverge.com/2015/7/1/8876817/chicago-cloud-tax-online-streaming-sales-netflix-spotify

​<snip intro>​


Chicago's new tax is actually composed of two recent rulings made by the
city's Department of Finance: one covering "electronically delivered
amusements" and another covering "nonpossessory computer leases." Each one
takes an existing tax law and extends it to levy an extra 9 percent tax on
certain types of online services. The first ruling presumably covers
streaming media services like Netflix and Spotify, while the second would
cover remote database or computing platforms like Amazon Web Services or
Lexis Nexis. Under the new law, what passes as $100 of server time in
Springfield would cost $109 if you're conducting it from an office in
Chicago.

Although the tax is technically levied on consumers, some companies are
already preparing to collect it as part of the monthly bill. Netflix says
it’s already making arrangements to add the tax to the cost charged to its
Chicago customers. "Jurisdictions around the world, including the US, are
trying to figure out ways to tax online services," said a Netflix
representative, reached by The Verge. "This is one approach."

The result for services is both higher prices and a new focus on
localization. For the web services portion, the most likely effect is
simply moving servers outside of the city limits — and, where possible, the
offices that use them. Once implemented, streaming services will also have
to keep closer track of which subscribers fall under the new tax, whether
through billing addresses or more restrictive methods like IP tracking,
which is already used to enforce rights restrictions.

Some lawyers have already taken issue with the city's move. After the
rulings were announced, Reed Smith partner Michael Wynne argued the taxes
violate both the Federal Telecommunications Act and, in the case of the
second ruling, 1998's Internet Tax Freedom Act, intended to prevent
discrimination against services delivered over the internet. "I could do
that same activity of research using books or periodicals without being
taxed," Wynne says. "So it does seem like I'm being picked on because I
chose to do it online."

But while the law may seem onerous, it's also a response to an increasingly
difficult reality for cash-strapped cities, particularly as online services
start to take a bite out of the businesses in the urban center. Twenty
years ago, the same albums and movies were consumed at video rental outlets
and music stores — which paid local property taxes, potentially paired with
municipal sales taxes and other brick-and-mortar duties. But as online
subscription services take over more and more of our music and video
budgets, that money ends up disappearing from the traditional municipal tax
base. By 2015, the people of Chicago are being entertained by corporations
outside of the reach of the city government, leaving it scrambling to make
up the difference. Facing a severe budget shortfall, it's easy to see how a
city might look toward online services to fill the gap.

Still, the net result for cloud services and customers alike is a confusing
hodgepodge. If taxes like Chicago's become widespread, it could become a
persistent problem for services like the newly launched Apple Music, which
hope to tempt listeners away from ad-supported services like Spotify’s free
tier. It would also mean further monitoring on where media is being
consumed, which would mean the experience of using a VPN to watch a US-only
video might be a harbinger of things to come. In the meantime, the law
world is struggling to piece through what the old laws will really mean for
the cloud. "There's no question that the city needs revenue and I can see
where things are escaping the old tax base," says Wynne, "I think the
objectionable part is that, instead of drafting new laws for that, we're
simply stretching the old laws to fit."


--
---------------------------------------------------------------
Joly MacFie  218 565 9365 Skype:punkcast
WWWhatsup NYC - http://wwwhatsup.com
 http://pinstand.com - http://punkcast.com
 VP (Admin) - ISOC-NY - http://isoc-ny.org
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-- 
---------------------------------------------------------------
Joly MacFie  218 565 9365 Skype:punkcast
WWWhatsup NYC - http://wwwhatsup.com
 http://pinstand.com - http://punkcast.com
 VP (Admin) - ISOC-NY - http://isoc-ny.org
--------------------------------------------------------------
-

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