Disney Plus users in Illinois would get hit under ‘Netflix tax’ proposal

Imposing more Mickey Mouse taxes in Illinois is just goofy, but that’s what a proposal in Springfield would do to users of the new Disney Plus and other streaming services.

Disney recently announced its answer to Netflix and Hulu, a streaming platform called Disney Plus. But Illinoisans who take advantage of this new service could find themselves getting hit with extra taxes under a proposal in Springfield.

House Bill 3359 would create the “Video Service Tax Modernization Act” and “Entertainment Tax Fairness Act,” which impose new taxes on satellite and video streaming service providers and subscribers. Under this bill, Illinoisans who stream movies on Disney Plus would join those who use Netflix, Spotify or satellite TV in paying a 1% tax “for the privilege to witness, view, or otherwise enjoy the entertainment.”

Companies would pay a 5% tax on their gross revenues if the bill were to become law. But consumers would bear the burden, as companies typically pass along new taxes to consumers.

HB 3359 would spread to all Illinoisans how Chicago already applies its amusement tax. Chicago broadened its 9% citywide “amusement tax” from concerts and sporting events to include online streaming services such as Netflix, Spotify and PlayStation purchases.

But Chicago’s “Netflix tax” runs contrary to federal and state law, according to litigation filed by the Liberty Justice Center, the Illinois Policy Institute’s litigation partner. Liberty Justice Center sued the city on behalf of streaming customers in 2015, following the expansion of the tax beyond ticketed live entertainment performances and events.

The Liberty Justice Center argued the 1998 Internet Tax Freedom Act prohibits states, counties and municipalities from levying taxes that discriminate against electronic commerce. Federal law prohibits any government body, including states and municipalities, from levying such taxes. If HB 3359 were to become law, then the statewide proposal would also be on shaky legal ground.

A circuit court judge ruled in the city’s favor in May 2018, upholding Chicago’s expansion of the amusement tax. The Liberty Justice Center is currently appealing the case before the First District Court of Appeals. Apple Inc. filed its own legal challenge against the tax expansion in August 2018, also on the grounds that it violates the Internet Tax Freedom Act.

This isn’t the first time lawmakers in Springfield have tried to mimic Chicago’s “Netflix tax.” A 2017 attempt failed to garner support and the effort was scrapped.

New taxes included in HB 3359 are the latest in a string of proposed tax hikes by state leaders. Gov. J.B Pritzker’s proposed budget for fiscal year 2020 includes a range of new and increased taxes and fees totaling $4.5 billion. The budget includes the first statewide plastic bag tax and a new tax on e-cigarettes, along with tax hikes on cigarettes, video gambling, sports betting and Medicare providers. On top of that, state lawmakers are also seeking to double the state’s gas tax – which would bring Illinois’ gas tax to second-highest from 10th-highest in the nation.

Despite saddling its residents with one of the highest tax burdens in the nation, Illinois’ inability to control its spending has resulted in a $134 billion government worker pension debt and an $8 billion backlog of unpaid bills. Without serious pension reform, new taxes will fail to fix state finances and leave Illinoisans worse off, if residents don’t join the high-tax exodus.

Instead of new taxes and fees, lawmakers should take up the reforms outlined in Budget Solutions 2020, including pension reforms, school district administration consolidation and budget process reforms that could fix Illinois’ finances within five years.

Lawmakers could also take up a constitutional amendment requiring a supermajority vote in both chambers to raise taxes, introduced by state Sen. Dan McConchie, R-Hawthorn Woods. A bipartisan spending cap measure would ensure state government spending does not grow beyond residents’ ability to pay.

Lawmakers in Springfield should reject a tax on streaming. Binging on creative taxation schemes can never fix Illinois’ fiscal crisis, but commonsense reforms might just give taxpayers a happily ever after.