The Chicago business scene is reeling from a new cloud tax law that requires some cloud-based businesses to pay a 5.25% fee on top of taxes already owed. As you can imagine, this is painful news to business owners and executives who haven’t accounted for such a commitment — and find themselves scrambling to reckon with the difference.
To clear up any concerns for our small business clients, we’ve delved into the nitty-gritty and distilled everything you need to know here.
The long and short? You probably won’t be affected.
But read on so you’re confident and clear on the stipulations and can rest peacefully assured.
First, a high-level rundown of the happenings: Chicago City Hall announced a new 9% tax fee applicable to all streaming and cloud technology-based businesses. The cost, officially in effect as of January 1, caused an uproar as businesses scrambled to both clarify and push back against the law.
Eventually, City Hall agreed to reduce the tax from 9% to 5.25%, a significant win for businesses. However, plenty are still significantly impacted — and below are the three key facts you need in order to determine if you are too.
Fact #1: The tax is only newly impacting businesses in the cloud space. According to the city of Chicago, the law is merely an extrapolation of the current Amusement Tax, or taxes being collected on sources of amusement like concerts and sports games. Now, the city is applying that law to electronic sources of amusement, which amounts to electronic, “impermanent” cloud-based offerings like Netflix streaming. The takeaway: if your business involves an entertainment- and cloud-based product, you owe the 5.25% tax due monthly starting February 15. If it doesn’t, you’re in the clear!
Fact #2: Of those cloud-based businesses, you’re exempt if your business is less than five years old and makes under $25 million in revenue. Start-ups fought hard for this exemption to protect themselves from owing a potentially damning cost. Year One is technically defined as the day a business starts generating revenue?
Fact #3: You will be impacted as a Chicago-based consumer as some companies choose to upcharge customers the 5.25% fee. Prepare to potentially drop some extra cash for that Netflix subscription!
All in all, the overwhelming majority of our small business clients will not be impacted by the new law.
That said, this event highlights the importance of getting intimate with your money and operating with a cushion in case unpredictable forces strike the market. Planning always wins!
Now, go forth to do what you do best: run your amazing small business!
To read more about this tax, see attached Chicago Crains’ article.