This post is part of our ongoing series on issues that municipalities may face in 2020.

Will digital streaming services such as Netflix become a source of revenue for municipalities this year? Recent legal decisions may offer clues.

In 2018, the U.S. Supreme Court in South Dakota v. Wayfair, Inc. et al. upheld South Dakota legislation authorizing the collection of sales tax from businesses even if those businesses did not have a “physical presence” in the state.

The City of Chicago, prior to the decision in Wayfair, had determined that its existing tax on amusements (concerts, sporting events etc.) applied to electronic delivery formats such as movies and music. This tax was dubbed the “Netflix Tax,” even though it would apply to more than just that service. According to Bloomberg News, Chicago has collected $2 million in tax from Sony, Eventbrite and Fandango.

In September 2019 the Illinois Court of Appeals upheld a lower court ruling that found the tax to be constitutional. The ruling, simply stated, found that the tax was applied to those using a service within Chicago and therefore was not a tax on services provided out of the city or out of the state.

Following the decision in Wayfair and in light of the revenues generated for the City of Chicago, will additional municipalities follow suit? According to several reports, Rhode Island is considering a sales tax on digital videos, books and music. Pennsylvania enacted a tax in 2016 and has now begun enforcing that tax this past summer. Whether New York state or local municipalities will tax, or try to tax, streaming services is to be determined. Stay tuned to the MuniBlog for updates.