You Can Say What You Wanna Say About Chicago’s Cloud-Nine (Percent) Tax

Everything one will want in the 21st century, one will find in the digital-cloud including — Chicago Mayor Rahm Emanuel hopes — $600 million to fill in a budget gap in the public school teacher pension fund.

Team Emanuel, as his administration is known in Chicago, has imposed a “cloud tax” that will make digital-content streaming services, like Netflix, 9 percent more expensive. It also targets online databases.

Emanuel might desperately need the infusion of cash to erase its pension woes, but Chicago’s high-tech business startup community complains the new tax makes their dreams of success 9 percent more unlikely — along with decreasing their desire to remain in the Windy City by the same factor, if not more.

Some business lawyers believe the Chicago cloud tax is much more than a new line item business expense for entrepreneurs and another household expense for Windy City residents.

They say it is blatantly unconstitutional because the tax was neither created nor approved by the Illinois Legislature; it was the brainstorm of Chicago City Hall bureaucrats. That equates to taxation without representation.

Here’s what the brainiacs came up with: The new tax is an amalgamation of two recent decisions by the bureaucrats who work behind those closed doors of the Chicago Finance Department. The first was a ruling covering “electronically delivered amusements.” The other was a ruling that involved “nonpossessory computer leases.”

So, it isn’t just the cloud tax that is taxing the patience of Chicago’s entrepreneurial community. They are also facing a new tax on their computer and other hardware leases. Even more than the cloud tax this could quickly derail startup businesses because so few can afford to purchase their own equipment.

“Every tech startup in Chicago is either using cloud computing services or selling them, and the city being the first to set this precedent puts us at a disadvantage to every other major tech hub ... or even our own suburbs,” Terry Howerton, a co-founder of TechNexus, wrote in an email to the Chicago Tribune.

But thanks the ubiquity of the Internet, it is not just Chicago businesses that will be affected by the new tax on the delivery of digital content.