'Cloud tax' upsets Chicago tech community: 'Life just
Source: Amina Elahi
Chicago’s new 9 percent tax on streaming and cloud services appears to have the local technology community agitated and, more than anything, confused.
City extends taxing power to online movies, music, more
Reports on Wednesday of the “cloud tax” took many Chicagoans by surprise, leaving providers and consumers of streaming and cloud services scrambling to understand the implications. Technology companies, among the heaviest users of cloud services, are likely to be taxed for the services they use as well as those they provide.
The cloud tax extends ordinances governing two types of taxes ― the city amusement tax and the city personal property lease transaction tax. The taxes cover many products streamed to businesses and residents. They also cover use of various online databases that could especially affect businesses.
Adrian Holovaty, founder of music-education web platform Soundslice, said he doesn’t know how the tax changes affect his business.
Holovaty’s questions include which of his subscribers should be taxed; whether he should be tracking his user’s physical locations; and how the city will enforce tax collection.
“I’m trying to hold off on being frustrated or angry until I actually understand what the new rules are,” Holovaty wrote in an email to Blue Sky. “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.”
Several in the Chicago tech industry criticized the mayor and the city for creating an environment that they see as less friendly to tech startups than other places around the country.
Terry Howerton ⇒, co-founder at TechNexus, a private-sector venture collaborative, said the rulings do not properly define categories such as “cloud computing,” leaving them open to apply to almost any company.
“Every tech startup in Chicago is either using cloud computing services or selling them, and the city being the first to set this precedent puts us at a disadvantage to every other major tech hub ... or even our own suburbs,” Howerton wrote in an email to Blue Sky.
Blagica Bottigliero, an Oak Park resident and longtime member of Chicago’s tech community who now serves as VP of digital media for California-based Metaverse Mod Squad, said the additional tax makes Chicago a less attractive location for startups.
“I wouldn’t be surprised if people look at other alternatives of places to go to that are near the city,” Bottigliero said.
She said she understands that the city needs to add revenue but that doing it this way hurts startups.
Michael Reever, VP of government affairs at the Chicagoland Chamber of Commerce, criticized the taxes as quick, insufficient fixes to larger fiscal problems.
“Given the economic climate and the economic picture, this is a step backward to making Chicago a tech hub,” Reever said.
Justin Massa ⇒, founder of restaurant data startup Food Genius, said his company has been using cloud services efficiently but that they remain his second-biggest expense after labor. Food Genius can handle the 9 percent cost increase for those services, Massa said, but it’s “not insignificant.”
Beyond the additional dollars Food Genius will owe, Massa expressed concern about how the tax will affect sales. Food Genius customers pay a subscription to access its cloud-based database.
“To customers that we call on in the city of Chicago, we just got 9 percent more expensive,” Massa said. “For anyone selling cloud services, life just got 9 percent harder.”
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