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.
In an order issued on Wednesday, Cook County Circuit Court Judge Daniel Duffy dismissed the case. Terms of the settlement weren’t disclosed.
Chicago introduced a so-called “Netflix tax” in 2015, levying a 9 percent surcharge on users of streaming entertainment services. The revenue program was a result of a reinterpretation of a long-standing tax program, extending the city’s tax on tickets for recreational activities and concerts to “amusements that are delivered electronically.” It’s widely regarded as the first tax specifically targeting the likes of Disney+, Spotify and Amazon Prime Video.
Apple sued in 2018 alleging violations of the commerce and due process clauses of the Constitution as well as the federal Internet Tax Freedom Act, which prohibits jurisdictions from imposing discriminatory taxes on several types of electronic commerce. “Customers are subject to an illegal tax,” reads the complaint. “If Apple does not collect the tax from its customers, it will directly be liable for a tax that the City of Chicago has no power to impose or authority to enforce.”
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 court. Chicago won the case, which was closely watched by tech companies and streamers, in an order holding that the tax is on solid legal footing. 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 is taxed by the city at a lower rate.
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.
The company chose not to refile its complaint. The judge never reached the merits of the case. In choosing not to fix 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.
Sony similarly sued Chicago over the tax but dropped its suit.
Chicago collected more than $30 million from users of streaming services in 2021, according to a Bloomberg Tax analysis of city data.
Local governments have increasingly been pushing to have streamers pay fees — once traditionally reserved for cable companies needing to use public rights-of-way to lay their lines — for using public infrastructure. In lawsuits challenging the taxes, streamers have mostly prevailed. Judges have rejected arguments that streamers can have fees assessed on them because they don’t use any public wires, cables or facilities. In April, Los Angeles Superior Court Judge Yvette Palazuelos kept in line with a string of rulings across the country finding that streamers aren’t subject to state laws regulating video service providers.
Apple’s attorneys declined to comment. Representatives for Chicago didn’t immediately respond to requests for comment.