Apple v Chicago streaming service tax battle ends in hushed settlement

A lawsuit settled last week between Apple and Chicago will be meaningful for streaming services around the US.

At issue was the US city's "amusement tax," which levies a 9 percent fee on entertainment facilities. The law was expanded in 2015 to include streaming services such as Apple TV and Music, Netflix, Spotify, Hulu and others.

Unsurprisingly, the expansion was opposed by streaming providers, but an agreed dismissal order filed last week in the circuit court of Cook County saw Apple abandoning its fight in an undisclosed settlement that dismissed its claims with prejudice. 

While decisions in the US largely favor streaming services that want to avoid paying extra taxes, the settlement in Chicago could be seen as an effort by Apple to avoid a ruling stating the tax is legal.

In March this year Cook County Circuit Court Judge Dan Duffy granted Chicago's motion to dismiss the initial suit, but left room for Apple to amend its complaint. Duffy presided over last week's rejected amendment, too.

Apple's lawsuit was first filed in 2018 and alleged violations of the Internet Tax Freedom Act, as well as the commerce and due process clauses of the US Constitution. The decision was delayed due to a lawsuit filed by Chicago customers of Netflix, Hulu and Spotify against the city government that challenged the constitutionality of the fees.

Chicago prevailed in that lawsuit, both originally and in an appeal [PDF], which found the fees to be constitutional. The Chicago government had no comments in response to questions from The Register, and we have yet to hear back from Apple or its lawyers in the case.

Changing the streaming landscape

According to Bloomberg Tax, lawsuits across the country have targeted streaming services, with varying results.

Bloomberg said that, as of late 2021, 13 states had localities actively suing to get compensation from service providers like Apple, Amazon and Spotify. Some decisions defended the rights of video streaming providers, while others like Chicago have come down hard in the opposite direction. 

One recent case in Lancaster, California, saw that city attempting to recoup unpaid franchise fees from Hulu and Netflix, an attempt it lost.

Of the 13 states with lawsuits mentioned by Bloomberg, six cases have since been dismissed or ruled in favor of streaming services, with others outstanding. Other local municipalities have taken to suing cloud computing providers as well, and for similar reasons: their services are taking money out of local coffers. 

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The US isn't exactly ahead of the curve on this debate: other parts of the world decided taxing tech services was a given in the face of tax revenue losses. 

For instance, the government in the Philippines approved a 12 percent tax on streaming and cloud services last year, and Canada has considered imposing a 5 percent tax as well. G7 nations last year agreed to a 15 percent tech tax, and in turn sought to eliminate digital service taxes paid by citizens. ®