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On July 1, the City of Chicago quietly announced it will now collect a 9% tax on streaming platforms like Netflix or Spotify as well as on cloud-based services like AWS, SaaS, and PaaS. The news, however, didn’t remain very inconspicuous for long and caused quite a ruckus in the flourishing Chicago tech community.
Many tech startups not only rely on cloud-based services to power their business, but they’re also busy innovating new services for their clients using the same cloud technology.
Consequently, the news from Mayor Rahm Emanuel left many Chicago tech leaders and entrepreneurs vocally concerned and confused, as the tax, they say, has the potential to cripple the city’s tech development.
Opinions on the matter mostly congregated on the opposite side of the decision.
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Initially, some entrepreneurs were more concerned with understanding the intricacies of the new tax and how precisely the change will affect business.
“I’m trying to hold off on being frustrated or angry until I actually understand what the new rules are,” Soundslice’s founder Adrian Holvaty wrote in an email to the Chicago Tribune. “But at face value, it seems like this new policy flies in the face of Mayor Emanuel’s efforts to build the tech community here.”
In an interview with Crain’s Chicago Business, Modest’s founder Harper Reed shared his frustrations.
"My initial concern was that I might have to charge our Chicago customers more, which is kind of a bummer," said Reed. "Then there was the other part of it . . . where all cloud services would be taxed. This is a big thing."
Modest provides mobile-commerce technology to small and mid-size businesses. Reed added, "The tax is less of an issue. It's unfortunate, but more concerning is that our very business-friendly mayor, who I'm a huge fan of, didn't give the business community a heads-up that this was coming.”
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But the news irked more than members of the tech community. VP of government affairs at the Chicagoland Chamber of Commerce told the Chicago Tribune that “given the economic climate and economic picture, this is a step backward to making Chicago a tech hub.”
The Mayor’s decision drew criticism from outside of the city as well. On Wednesday, Forbes contributor Travis Brown slammed the move in an opinion piece, which affectionately opened, “There should be small print on ‘Welcome to Chicago’ signs – something along the lines of ‘businesses and innovators not actually welcome.’”
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The good news? The Mayor’s office seems to be responding well to the pressure it’s facing from the tech community.
On Tuesday, the mayor’s office released a statement via an 1871 press release, claiming a new proposal will “basically exempt” startups from the cloud tax.
The mayor’s office could not be reached for comment, but here’s the full statement:
"... we will announce that the administration will be taking measures to provide relief to small businesses so as not to put them at a competitive disadvantage with their peers in other cities. It will take us a month or so to formalize the proposal, but it will basically exempt start-ups (based on revenue) from paying the tax. Obviously a lot of legal issues here as this tax has been on the books for decades, but we are confident we can work through them."
The tax goes into effect on September 1.
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