Press Releases

Video Game Industry Association Sues to Fight Online Tax

Chicago, IL – June 5, 2017 – The Entertainment Software Association (ESA) today filed a lawsuit challenging the city of Chicago’s illegal and harmful expansion of its existing Amusement Tax to include online video game play occurring through streaming and subscription services. ESA, which filed the lawsuit in the Illinois Circuit Court of Cook County, contends that Chicago’s reinterpretation of the Amusement Tax violates the Internet Tax Freedom Act.

“This discriminatory tax makes Chicagoans’ lives more expensive, just because they live in the 21st century and choose to play video games online,” said Michael D. Gallagher, president and CEO of ESA, the trade association that represents the US video game industry. “As one of the most innovative and rapidly growing industries in Illinois, we are proud to take this fight to court and stand up for consumers. Chicago’s tax bureaucrats are out of line in extending their reach beyond legal limits imposed by federal law. We intend to remedy that situation.”

Chicago’s Revenue Department issued its ruling in June 2015, reinterpreting the city’s Amusement Tax to now reach “participating in games online” and other electronically-delivered “amusements” with no opportunity for the public’s participation. As a result, Chicago residents now must pay an additional 9 percent tax on streaming and subscription services, such as memberships to online game communities, subscriptions to specific online games, and subscriptions to game libraries.

The 9 percent tax on online video game play occurring through streaming and subscription services violates the Internet Tax Freedom Act by discriminating against online entertainment. The Amusement Tax charges Chicago residents a 9 percent city tax on online games and streamed content, but no tax is due when games or content are obtained from a store in downtown Chicago. The city’s Amusement Tax hurts ordinary Chicagoans by forcing gamers to pay for their elected officials’ budget mistakes, literally.

“When it comes to video games and streaming services, the Chicago Amusement Tax clearly discriminates against e-commerce and those Chicago residents who prefer digitally-delivered media – and is thus a violation of the federal Internet Tax Freedom Act” said Simon Rosenberg, digital policy expert and president of NDN, a progressive think tank and advocacy organization. “The explosion of e-commerce here in the US is going to require lots of rethinking of old ways of doing business. But this attempt by the city of Chicago to capture revenue in a dynamic part of our economy is badly designed and illegal – and should be scrapped without delay.”

“This legal challenge will help Chicagoans fight back,” said Grover Norquist, president of Americans for Tax Reform. “From online streaming media services to online video games, this reinterpretation of the ‘Amusement Tax’ allows tax collectors to reach too far into the daily lives of Chicago residents. Chicago’s politicians shouldn’t be looking for yet another way to squeeze more money out of ordinary citizens.”

View ESA’s full legal challenge of Chicago’s Amusement Tax here.

ESA offers a wide range of services to interactive entertainment software publishers, including conducting business and consumer research; providing legal and policy analysis and advocacy on First Amendment, intellectual property, and technology/e-commerce issues; managing a global content protection program; owning and operating E3; and representing video game industry interests in federal and state government relations. For more information, visit ESA’s website or follow us on Twitter at @RichatESA or @ESAGovAffairs.

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