US – Tax Rate for Streaming Services Increased in Chicago

The City of Chicago, located in the US State of Illinois, released a notice on the change in tax rates adopted in December last year, effective from January 1, 2025. The changes in tax rates include those applicable to personal property lease transaction tax, parking tax, and amusement tax for paid TV and electronically delivered amusements.

New Rate for Streaming Services

The State of Illinois has a three-rate structure, defined under the Illinois State Tax: qualifying food, drugs, and medical appliances, items required to be titled or registered, and other general merchandise tax rates. In addition to the 6.25% state-wide tax, local governments may impose additional taxes and fees, which can be no more than 4.75%.

Therefore, the City of Chicago imposed an 11% tax on the lease or rental price. Furthermore, video and audio streaming services and online games are subject to a tax of 10.25% of the fees paid for viewing or participating in such amusement, equal to the combined sales tax rate.

The Amusement Tax was introduced in 2015 and applies to all sales of any exhibition, performance, presentation, or show for entertainment purposes, such as theaters, promotional shows, circuses, and sports. Additionally, the amusement tax applies to any entertainment or recreational activity offered for public participation or on membership or other basis and streaming services.

The tax applies to subscription, per-event, and similar fee business models as long as the shows, movies, videos, music, or games are not permanently downloaded, but only streamed or temporarily downloaded.

Conclusion

The Amusement Tax, also known as the Netflix Tax, shows how challenging it can be to comply with US tax rules, especially for digital service providers. However, while many states or local governments expanded the sales tax base to include digital services, the City of Chicago took a different, more innovative approach. 

The City subjected streaming services to the amusement tax. This means that streaming services to Chicago residents are subject to 6.25% state-wide sales and use tax, 1.25% city sales and use tax, and 10.25% amusement tax. This does contribute to more revenue for the city, but it is debatable whether streaming services should be categorized as amusement events.

Source: City of Chicago - The Department of Finance, Amusement Tax Ruling