Tax Memo

INTRODUCTION
The purpose of this memorandum is to evaluate the City of Chicago’s decision to tax cloud-based services such as Netflix and Amazon Web Services. First, this memorandum will provide background for this decision. Next, this memorandum will explore issues for consideration in reference to this new tax. Last, recommendations will be given on how the city can best execute this new tax.

BACKGROUND
In late May of this year, the City of Chicago made the decision to tax online-streaming services, such as Netflix and Amazon web-based services, in what some call the “cloud tax”. Starting on July 1, 2015, a 9% tax has been applied rental and subscription fees paid for online-steaming and cloud-based services. City officials reinterpreted

It is expected that the city will garner $12 million dollars income due to these new taxes. In previous years, revenue from physical product sales has declined. Prior to this ruling, a state could only levy taxes on “purchases made from a remote vendor with a physical presence in the

Given that the tax is a Chicago-specific ruling, there is now incentive for companies to do business outside of city limits to avoid taxes. Due to increasing concerns from small-business owners, city officials are considering exempting startups from the tax based on their revenue.

Collectability
Another concern with this tax as is a reinterpretation of two older taxes. In the early stages of this ruling’s implementation, there already seems to be confusion and frustration on how these taxes will be levied, especially in the case of the nonpossessory computer leases. Companies who have a physical presence in Chicago will have to collect taxes from consumers. However, consumers who use subscription-based service based outside of Chicago will have to file taxes themselves.

RECOMMENDATIONS
Chicago’s cloud tax is an innovative way to generate tax revenue from an emerging service. However, there are some recommendations to improve the collection of the tax.

1. Write a new ruling that deals specifically with digital