Originally published on Forbes.com.
Yogi Berra once remarked that “If people don’t want to come out to the ballpark, nobody’s going to stop them”. So it goes. But the Comptroller of the City of Chicago figured out a way to tax them as if they did. Chicago has a 9% “amusement tax”, which is no laughing matter. The Controller in Amusement Tax Ruling #5 raises the same question Liza Minelli asked in Cabaret – What good is sitting alone in your room?. We’re going to tax you anyway.
The amusement tax applies to charges paid for the privilege to witness, view or participate in an amusement. This includes not only charges paid for the privilege to witness, view or participate in amusements in person but also charges paid for the privilege to witness, view or participate in amusements that are delivered electronically.
So that means Netflix and other streaming services along with other things. I’m going with Netflix, since that is what my covivant (CV) and I watch. We’re currently working out way through Person of Interest. We like the dog. And the Liberty Justice Center which concerns itself with government overreach down to the local level is fighting the tax.
Local Tax Taxing Activity That Is Not Local?
One of the problems I see with the tax is that Netflix doesn’t actually know where you are when you are watching. CV and I have an RV now. The thing has three television sets as standard equipment. If we had a billing address in Chicago, we would be paying the tax even if we were just using our Netflix when we were traveling
It imposes the amusement tax on individuals “whose residential street address or primary business street address is in Chicago, as reflected by their credit card billing address, zip code or other reliable information
I’ll just whine about things like that but Michael Labell and a few others took some action and brought a lawsuit. Michael Labell is a Netflix guy. Jared Labell goes with Amazon Prime. Natalie Bezek listens to Spotify, Emily Rose, a big spender, has Netflix, Amazon Prime and Hulu. Bryant Jackson has those three and Spotify. Michael Devitt is more of a person of action than a mere spectator and has an Xbox Live “Gold” account. Forrest Jehlik gets by with Netflix. Of course, having their interest align with the mission of the Liberty Justice Center mission gave them a leg up in their struggle to save a few bucks per month.
Tax Upheld
Judge Carl Anthony Walker of the Tax and Remedies Section of the Cook County Circuit Court had bad news for them a few weeks ago when he upheld the Comptrollers’ interpretation that tacked the 9% amusement tax onto the Netflix bill making it just like being taken out to the ball game. There were a number of interesting arguments.
One argument was that the tax violated the Internet Tax Freedom Act because the tax was not imposed on “automatic amusement machines”, which would seem to favor pinball wizards over hardcore gamers. The city does, however, have an annual tax on the machines, which seems a lot more practical than taking a percentage. Also, the City taxes live performances at a lower rate. The court was OK with that because live performances are different than experiencing things on the internet. Who knew?
On that issue of being taxed by the city even when you are not in the city, that is addressed by the Mobile Sourcing Act. And there was a Commerce Clause argument which went nowhere.. All in the plaintiffs seem to have put on a first-class effort, which to me is a little out of proportion to three bucks or so on the Netflix bill.
The Principle Of Thing
So I wasn’t surprised when I talked to one of the attorneys Jeffrey Schwab. Mr. Schwab is a senior attorney for the Liberty Justice Center. Here is what they say about themselves.
The Liberty Justice Center is a nonprofit, nonpartisan public-interest litigation center that fights to protect economic liberty, private property rights, free speech and other fundamental rights in Illinois and beyond. First and foremost, the Liberty Justice Center seeks to ensure that the rights to earn a living and to start a business – which are essential to a free and prosperous society – are available not just to a politically-privileged few, but to all. The Liberty Justice Center pursues its goals through strategic, precedent-setting litigation to revitalize constitutional restraints on government power and protections for individual rights.
LJC is a 501(c)(3) organization, so it cannot engage in any political activity. Mr. Schwab allowed that a lot of the people there tend to lean conservative and libertarian. LJC grossed $494,000 in 2016. They seem to be somewhat dependent on larger donations with a public support percentage around 50%. That is a measurement of how much of the revenue comes either from government grants or donors who have given less than 2% of the total. If your percentage goes below one third you are a private foundation.
Mr. Schwab told me that they plan to appeal and are somewhat optimistic. The recent Supreme Court decision in Wayfair cuts the chance that they will be able to make a federal case, but they were not counting on that. I asked him how this case fit in with LJC’s overall mission and he said it was a matter of government overreach. The view seems to be that the political class in Chicago and Illinois overall just keeps taking and taking more from the taxpayers rather than becoming more efficient.
Other cases they have taken on are for a storage company that was going to be required to take a sign painted on the building off, against an ordinance that did not allow food trucks based outside of Evanston to operate in Evanston and against Illinois campaign finance law.
Big Picture
Liberty Justice Center is related by common governance to the Government Accountability Alliance, a 501(c)(4) which grossed almost $6.3 million in 2016. The principal officer in both organizations is John Tillman. According to this story by Mick Dumke and Tina Sgondeles of the Chicago Sun Times, Tillman has his hand in quite a few organizations. I decided that I would just take it one step, though, so I spoke with Hillary Gowins of the Illinois Policy Institute, another 501(c)(3) that has Tillman as the principal officer. Illinois Policy Institute grossed about $6.4 million in 2016.
I asked Ms. Gowins if IPI engaged in any political activity and she answered “Of course not”, since that would be illegal. I realized I was getting mixed up with the Government Accountability Alliance, which is a 501(c)(4) and could engage in some political activity. In terms of the overall purposes of the various organizations, which are independent, but work together, it might be summed up as being taxpayer watchdogs promoting free markets and limited government.
There is an opposition to the “elites” meaning the Chicago and Illinois political machines. All in, it made Chicago and Illinois sound like pretty bad places afflicted with so much corrupt government. I asked her if there were states where things were better. She mentioned Texas, Arizona and Indiana.
The Big Time
While I have been being distracted from this piece by the Trump Foundation, Liberty Justice Foundation hit the big time. Mark Janus won in the Supreme Court against the American Federation of State, County and Municipal Employees (AFSCME). Janus did not like the “fair share” fees that were he had to pay AFSCME for collective bargaining. He was represented by attorneys from the National Right to Work Foundation and Liberty Justice Foundation.
That is probably a bigger deal than the Netflix tax, but somehow it all fits together.
Other Coverage
Kelly Erb already covered the case for forbes.com last month with Chicago’s ‘Cloud Tax’ On Streaming Services Like Netflix Survives Legal Challenge”.
Michael J Bologna had something on Bloomberg – Chicago ‘Netflix Tax’ OK, But Appeal in Queue. He characterized Liberty Justice Center as a “libertarian think tank”. That is not how they characterize themselves, although there is some libertarian flavor in their stew.
John Tillman appeared on forbes.com with piece titled The Unctuous, Impoverishing Bigotry of Class Warfare in 2012.
This bigotry against those who do succeed must stop. We must all champion the entrepreneurs and those who work with them. We must champion them in the basement; we must champion them when they are rising. And most of all, we must champion them when they make it to the penthouse and become part of the 1 percent.