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August 22, 2019

Sony pays up on unpaid Chicago streaming service tax

May 19, 2019
Facade at regional headquarters of Sony Interactive Entertainment, as well as headquarters of the PlayStation division of Sony, in the Silicon Valley, Foster City, California, November 17, 2018. (Smith Collection/Gado/Getty Images)

Stream at the peril of your pocketbooks, Chicagoans.

The city collected in January on more than $1 million in unpaid sales tax from Sony, Bloomberg Tax reported Wednesday.

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The entertainment conglomerate waved the white flag on its liabilities for taxes on gaming charges, electing not to further resist the imposition of the city’s 9% tax on its streaming services.

The Chicago tax survived a court challenge last year.

The move might signal that other tech firms who have lodged resistance to Chicago’s tax, such as Apple, might follow Sony’s lead. Or that other cities and states might consider instituting a similar tax.

“You can just see the trend here in that, in the olden days, the locality could tax your cable bill, and as people are switching to streaming services, they kind of followed the money,” Mark Mazur, director of the Urban-Brookings Tax Policy Center, said in a phone call. “It’s certainly something that state and local governments will be taking a look at going forward.”

Sony had previously disputed its liability under the tax, often referred to as a “Netflix tax,” arguing that it lacked a physical presence in Chicago, Bloomberg Tax reported.

The confidential settlement between the city and Sony, obtained by Bloomberg Tax, covered gaming charges between April 2017 and October 2018. The settlement waived interests and penalties on Sony’s tax bill, and Sony began collecting the 9% tax in November, according to the report.

“It gives a sense that this is an acceptable area for other jurisdictions to look at in terms of setting up their tax base,” Mazur said of the settlement.

Pennsylvania and Florida have also passed taxes on streaming services.

Last year, the Supreme Court ruled that states can collect sales tax on online purchases.

Katherine Loughead, a policy analyst at the Tax Foundation, an independent Washington think tank, said she didn’t think Chicago was taking the best approach to taxing streaming services.

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“There are right and wrong ways to tax digital goods — Chicago has chosen the wrong way,” Loughead said, arguing that it would be better to apply a general sales tax to streaming services. “The best solution for Chicago would be to drop the amusement tax and instead fix the sales tax (and) modernize the sales tax for the 21st century.”

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