Apple, Chicago settle legal brouhaha over the so-called ‘Netflix tax’

Apple and Chicago have come to terms on a deal to drop the tech giant’s lawsuit challenging the city’s first-of-its-kind tax on users of streaming services — the so-called “Netflix tax — according to The Hollywood Reporter.

In an order issued on Wednesday, Cook County Circuit Court Judge Daniel Duffy dismissed the case. Terms of the settlement weren’t disclosed. The Windy City introduced the 9% amusement tax in 2015.

Apple lodged a lawsuit against Chicago, alleging the tax and a city Finance Department ruling extending the tax to streaming services violate the U.S. and Illinois constitutions and the Internet Tax Freedom Act.

Focusing on its music streaming service, Apple alleged that Chicago’s amusement tax is illegal, arguing in a complaint filed with the Cook County Circuit Court on Monday the tax is discriminatory toward electronic commerce and imposes an undue burden of forced tax collection.

Section 4-156-020 of the Chicago Municipal Code imposes a tax upon the patrons of every amusement within the city. The tax is based on the admission fees or other charges “for the privilege to enter, to witness, to view or to participate in the amusement.”

What is an “amusement,” according to the law? In general, all entertainment or recreational activities offered for public participation or on a membership or other basis are amusements subject to the tax. Examples of taxable fees or charges, include but aren’t limited to those for sporting events, concerts, movies, cover charges, pub crawls, sport and social clubs, tours, cruises, etc.

The case was put on hold for two years while a separate lawsuit against Chicago from Netflix, Hulu and Spotify users worked its way through the courts. Chicago won the case, which was closely watched by tech companies and streamers. An appeals court found no violations of the Internet Tax Freedom Act, rejecting arguments that the tax discriminates against streaming services compared to live performances, which are taxed by the city at a lower rate.

The Hollywood Reporter notes that Apple amended its lawsuit after the ruling, alleging that the tax is unconstitutional with respect to its particular services. Duffy, however, was unconvinced and dismissed the case.

Apple chose not to refile its complaint. The judge never addressed the merits of the case. In choosing not to further pursue its claims, Apple and other streamers impacted by the tax avoided a ruling that could’ve set a precedent that the revenue program is legal.