That was my first thought. But on second thought, I wouldn't be surprised if big companies, like Netflix, don't have a problem with taxes. The billion dollar tech companies have the wherewithal to implement different tax regiments to each of their customers. It's the startups that this move will hurt and thus add entry barriers protecting the market share of the big boys.
I wonder - what if you took the code for Popcorn Time, made your own front-end and used the majority of your funds to sign deals with production companies? If it's P2P you could be based in Iceland for all it matters. You could avoid goods and services taxes everywhere because P2P is ephemeral and you'd avoid lawsuits from the rights holders for being a legitimate front-end for their content.
Your attack surface would mainly be P2P blocking in countries that don't like the cut of your jib or throttling from ISPs.
How is this "extortion"? You pay sales tax when you buy a DVD or go to a movie, why should Netflix be tax free? I mean you can have a philosophical opposition to consumption taxes, but that's different.
Local businesses operating physically inside the city consume resources to some extent. They use the roads, sidewalks, buildings, cause people to walk/drive to certain places, etc. They pay for rent and other expenses, but also use/benefit from city resources that they aren't directly charged for.
But netflix obviously doesn't have any physical presence in chicago.
It doesn't matter. Chicago residents now subsidize Chicago services some other way. (Via this Netflix tax.) End of (that) story.
Is it good that Chicago is subsidizing services by taxing some other activity, mainly those that are not really utilizing those services, and taxing residents that might not even use or benefit (directly) from those services? Well, maybe not. But since it only provides a very small selection pressure it's unlikely that residents will move out, or speak out.
Consumption taxes are usually passed on to the consumers even if they are collected by the seller. Making the seller responsible just makes tax evasion harder.
One difference is that when I buy a DVD from an out of state seller that does not have a presence in my state, I'm the one responsible for paying my state's sales tax [1]. The out of state seller is not, and my state has no authority to require them to do the collection for it.
I think that when OP referred to extortion, he was referring to Chicago collecting through Netflix, instead of requiring its residents to remit the tax themselves.
If Netflix does not have a sufficient nexus with Chicago to force them to collect, I too would like to see them tell Chicago to go suck donkey lincolns. My reason is not because of any philosophical objection to their tax, but simply because of the effects if other municipalities also decide to do this.
Collecting tax for thousands of municipalities would be a nightmare. There would be a plethora of ways they would provide rate data. Some would have a reasonable way to get it, like a URL that retrieves the current rate and valid date range, and the upcoming rate when it is going to change. Some would have arcane online protocols. Some would have a .DOC file you can download. Some would have it in a memo that you can get a PDF copy of. UUUUUUGGGGGGGGGHHHHHHH!!!!!
Then there would be actually paying the tax. That would be like getting rates--many different methods of reporting, with many different requirements for what you have to report.
I've seen this with sales tax, and with VAT in the EU. Every Thor damned taxing authority seems to assume that they are the only taxing authority you are collecting taxes for, so if they make part or all of the process hard to automate it is no big deal. Let every municipality in on this, and small companies will need a full time person just dealing with tax rate tracking and tax reporting.
[1] well actually it's my state's use tax, not my state sales tax, in this case, but for all practical purposes they are the same.
> If Netflix does not have a sufficient nexus with Chicago to force them to collect, I too would like to see them tell Chicago to go suck donkey lincolns
Sadly, Netflix appears to have a shipping center in Chicago (and 3 more in other parts of Illinois), so they probably can be forced to collect.
Spotify appears to have an office in Chicago (their jobs page has an opening for Sales Development Manager, Midwest, listed as being in Chicago, and Chicago is an item on the ___location dropdown on that page).
Apple has two retail stores in Chicago.
Amazon has a warehouse there.
Microsoft has an office there.
Rackspace has a datacenter there...and I just realized that tzs.net is in that data center. Oops. I'm not selling anything, so it's not a problem now, but I'll probably move it to Dallas to future proof it.
Extortion: the practice of obtaining something, especially money, through force or threats. [1]
It's the literal definition of extortion. If you don't give the government your money, they'll [shut your business down|throw you in jail|fine the hell out of you]. The DVD tax is also extortion, but it's more easily justified because there are actual physical things moving through the city's jurisdiction.
The Wikipedia definition is more apt here, and solves the confusion that you're having:
> Extortion (also called shakedown, outwrestling, and exaction) is a criminal offense of obtaining money, property, or services from a person, entity, or institution, through coercion.
It's not a criminal offense when the government is doing it legally, which they are in this case because the legislature passed a law through the normal process.
It's saying that extorsion is a criminal offense, not that only criminal offences can be extorsions. In other words, the criminal offense originate from the act of extorsion, not the reverse.
Even admitting that there can be some taxes that are less kosher than others even if legal, how is that the cars here? How is this different than any other consumption tax?
well its not like Netflix will be paying the tax, like all other taxes it is passed onto the consumer. Now as long as its explicit on the bill that the tax is because you live in Chicago I am just fine with it. why? because the people who live in Chicago need to vote better.
Honestly I am surprised it took this long for services delivered by out of state companies to get taxed after the fiasco with taxing purchases from Amazon and the like. The same train of thought applies, its "unfair" to local companies who cannot compete with the pricing models internet companies have. While to me there is a lot of bunk in that statement it does quite well in selling the taxes and fees.
Anytime money exchanges hands there are government agencies who can charge a fee, tax, or whatnot. What the majority fail to understand is the sheer amount of taxes they pay, both direct and embedded. Each tax carries a cost outside of its direct application in the form of the overhead at the sellers place and the taxing authority.
I'm always curious how taxes like this are enforced, presumably the City of Chicago can just sue companies like Netflix and Spotify if they think they're not getting their share. If I have my own small-time video streaming business does that mean I have to worry potentially about any municipality coming after me for unpaid taxes? That could get a little nuts if there are thousands of cities that could potentially have ordinances like this. How do I keep up? Am I just not understanding the scope of this?
Wynne said the additional fees, applied in a city already known for high taxes, could be enough to push individuals and companies over the edge. He said that since the taxes will be levied based on Chicago billing addresses, there’s nothing to stop individuals from moving outside city limits or listing billing addresses in other towns. The same is true for businesses.
“Let’s say I sign up for streaming business data in the city but I have offices throughout the country,” Wynne said. “I will definitely make sure my billing goes through a different office.”
This doesn't answer the question. Who actually pays the taxes to the city? How does the city come after either the consumer or the provider, especially if the provider is in California/Europe/Russia/etc? I read the article and I don't understand how this works.
From the article: "But those companies could start collecting taxes sooner to avoid paying the taxes themselves."
This is also how I understand other, similar taxes (like Sales Taxes) work. The business whose service/good would have incurred the tax is also responsible for paying the tax. You're liable for it, regardless of it you collect it from the consumer or not.
That does answer the question in the narrow, but more broadly: what are the practical implications for a company with no other presence in Chicago if they don't pay?
They can be sued in a Chicago court, and if they don't defend themselves, a default judgment will be rendered, and then the fees will be collected directly out of the company's bank account, wherever it happens to be.
The United States is a pretty monolithic entity as far as laws and enforcement goes. You don't get away with, e.g., assault by fleeing to a different state; you'll simply be caught by that other state and turned over to the first state to face charges. Similarly, you don't get away with tax evasion any more easily. Now if your company is based in another country, then you might have a better chance.
This sounds like a good argument to use a local bank that only operates in your state, rather than a national bank.
That way, if someone gets an out of state default judgement from a court that does not have personal jurisdiction over you, they will have to bring that judgement to your state and file it with a court in your state in order to get something enforceable in your state. That should give you an opportunity to challenge the validity of the judgement on jurisdiction grounds.
States are required to recognize the judgements of the courts of other states, but only if the court rendering that judgement had jurisdiction.
My Civil Procedure recollection is rather hazy. Suppose Chicago sued, in Chicago courts, a small entertainment company that clearly does not have sufficient contacts with Chicago to meet the Constitutional requirements for giving Chicago courts personal jurisdiction.
I believe that as part of its pleadings, Chicago would have to tell the Court why it believes that Court is the proper place for the suit, and part of that is explaining to the Court how it has personal jurisdiction.
Here's what I do not remember. If the defendant did not appear to dispute that, would the Court simply accept plaintiff's theory of jurisdiction, or does the Court review on its own whether or not it does indeed have jurisdiction?
I have a vague recollection that it is the latter, because the issue of whether or not the court has jurisdiction is not an issue between the parties, but rather determines whether the court even has authority to adjudicate the case, but I could easily be confusing this with something else.
That way, if someone gets an out of state default judgement from a court that does not have personal jurisdiction over you, they will have to bring that judgement to your state and file it with a court in your state in order to get something enforceable in your state. That should give you an opportunity to challenge the validity of the judgement on jurisdiction grounds.
Judgements of one state's courts are valid in all other states, and can be enforced in other states' courts under the Full Faith and Credit clause of the Constitution, even if the laws in other states are different, unless the judgement is contrary to the public policy of the other state. An example would be trying to enforce an AL non-compete clause in a California court after a non-executive employee has moved from an AL employer to a competitor in CA. Non-competes for non-executives are contrary to public policy in CA on the grounds that they inhibit an employee's rights to earn a living, and so will not be enforced by a CA court.
States are required to recognize the judgements of the courts of other states, but only if the court rendering that judgement had jurisdiction.
No, states are required to enforce the judgements of other state's courts unless the judgement is contrary to the public policy of the state in which enforcement is sought. The defendant is not allowed to challenge the jurisdiction of the original court in an enforcement proceeding--they were supposed to do that in the original trial (or in their appeal to the original ruling). However, if the defendant has challenged jurisdiction (or other issues) in its appeal to the original judgement (in the proper court for making such an appeal), enforcement proceedings (in other states) must be stayed until the appeal is resolved, since the judgment may be overturned.
> No, states are required to enforce the judgements of other state's courts unless the judgement is contrary to the public policy of the state in which enforcement is sought. The defendant is not allowed to challenge the jurisdiction of the original court in an enforcement proceeding--they were supposed to do that in the original trial (or in their appeal to the original ruling).
I think you may have overlooked that we are talking about a default judgement. If it were not a default judgement, then yes, the defendant cannot subsequently challenge the jurisdiction of the original court when the plaintiff comes around to his state to enforce the judgement.
If it was a default judgement, however, the defendant can raise a collateral attack on personal jurisdiction (and only on personal jurisdiction), at least in some states, such as California [1], New York [2], Connecticut [3], Florida [4], and Texas [6].
(That Connecticut case is a good illustration of how NOT to raise a collateral attack on personal jurisdiction. Boy, did that defendant blow it).
Massachusetts has a really interesting law on recognition of judgements from other states [5]. They enumerate the conditions under which a foreign judgement will NOT be refused recognition for lack of personal jurisdiction:
A foreign judgment shall not be refused recognition
for lack of personal jurisdiction if (1) the
defendant was served personally in the foreign
state; (2) the defendant voluntarily appeared in the
proceedings, other than for the purpose of
protecting property seized or threatened with
seizure in the proceedings or of contesting the
jurisdiction of the court over him; (3) the
defendant prior to the commencement of the
proceedings had agreed to submit to the jurisdiction
of the foreign court with respect to the subject
matter involved; (4) the defendant was domiciled in
the foreign state when the proceedings were
instituted, or, being a body corporate had its
principal place of business, was incorporated, or
had otherwise acquired corporate status, in the
foreign state; (5) the defendant had a business
office in the foreign state and the proceedings in
the foreign court involved a cause of action arising
out of business done by the defendant through that
office in the foreign state; or (6) the defendant
operated a motor vehicle or airplane in the foreign
state and the proceedings involved a cause of action
arising out of such operation.
Aren't all of these things that would constitute sufficient contacts with the foreign state to grant it personal jurisdiction? If so, what is the purpose of explicitly listing them?
I wonder if the idea is that these are common things that people who want to raise a collateral attack on personal jurisdiction run afoul of, and so by listing them they hope that such defendants will realize they will not be successful and hopefully avoid wasting the time of Massachusetts courts?
The phrase that the Supreme Court seems to like when it talks about Full Faith and Credit and challenging judgements on jurisdiction is "fully and fairly litigated". Once the jurisdiction issues is "fully and fairly" litigated (such as in the original court in the case where the defendant does participate), it cannot be subsequently challenged in a collateral attack. If the defendant does not participate, and so the jurisdiction issue is not dealt with, then a collateral attack is possible without violating Full Faith and Credit.
Not quite. For you to be liable for it, the entity that wishes to collect from you has to be able to sue you in a court that (1) recognizes that you are liable for it, and (2) has personal jurisdiction over you.
Generally, courts of the region in which you reside have personal jurisdiction over you. So, if you and the collecting entity are in the same state, then that state's courts satisfy #2.
If you don't reside in a region, that region's courts may still have personal jurisdiction over you depending on how your activities relate to that region. There has to be some connection between you and that region, and you have to have purposefully done something to create or benefit from that connection.
As the Supreme Court put it in an important case on jurisdiction (Hanson v. Denckla), "unilateral activity of those who claim some relationship with a nonresident cannot satisfy the requirement of contact with the forum State. The application of that rule will vary with the nature and quality of the defendant's activity, but it is essential in each case that there be some act by which the defendant purposefully avails itself of the privilege of conducting activities within the forum State, thus invoking the benefits and protection of its laws."
So, getting back to the question that was at the start of this branch of the comments, if the small streaming business really has no contacts with the out of state municipality trying to collect taxes, and has not purposefully tried to get customers from that municipality, it is unlikely they would be liable for the taxes of their customers in that municipality. (But check with a lawyer familiar with your state's tax laws--you want to make sure your state has not entered into some sort of reciprocal tax collecting arrangement that does require collecting taxes on transactions between the two).
There's a lot of case law on this. Googling for "Personal Jurisdiction" is a good start if you want more on this. (And while Googling, be sure to take some time to make sure that Hanson v. Denckla is still good law...I haven't checked to see if it has been overturned or superseded).
You're confusing separate jurisdictional issues. Personal jurisdiction is relevant to the underlying lawsuit, because it can nullify a judgement.
Personal jurisdiction isn't very relevant to an enforcement proceeding, as presumably it is filed in the state in which the defendant is located. For a business, this generally means any state in which it is incorporated, registered as a foreign corporation, or has facilities such as (but not limited to) offices or factories. If a court doesn't have personal jurisdiction over a defendant in an enforcement proceeding, that simply means the plaintiff needs to file again in the proper venue.
My first paragraph was badly written, so perhaps made it look like I was talking about the enforcement proceeding to collect whatever was won in the underlying lawsuit.
The intent, though, was to talk about the underlying lawsuit, and the effect of a lack of personal jurisdiction of that court over the defendant.
IANAL... Within the US, you are only responsible for paying taxes in the jurisdictions you reside in. It's pretty simple to cover those cases and ignore the rest.
For example, a business with offices in California and Nevada must collect sales tax when selling mail-order stuff to California and Nevada addresses, but are not required to collect sales tax for selling mail-order stuff to the other 48 states.
You are responsible for paying taxes in any jurisdiction in which you have sufficient nexus to justify taxation. For individuals, residence is the generally accepted means for establishing residence, but some states also use employment as a nexus (such as New Jersey). For businesses, nexus is much broader, and generally includes any state in which the business is incorporated or registered to do business, any state in which it has facilities or employees, and (for sales and GST taxes) generally any state in which a customer is located.
The Chicago tax would be most similar to a sales/GST tax. Under well-established state and local tax principles Netflix, et al, could generally be required to collect the Chicago tax on sales/services to Chicago customers.
> You are responsible for paying taxes in any jurisdiction in which you have sufficient nexus to justify taxation.
...
Yup.
> For businesses, nexus is much broader, and generally includes any state in which the business is incorporated or registered to do business,
Yup.
> any state in which it has facilities or employees,
Yup.
> and (for sales and GST taxes) generally any state in which a customer is located.
Nope. That may be a sufficient nexus to satisfy due process, but it is not a sufficient nexus for the dormant commerce clause. See Quill Corp. v. North Dakota, 504 U.S. 298 (1992).
It will become sufficient if Congress ever passes and the President signs the Marketplace Fairness Act of 2015 or something similar, but that bill is a long way from that.
Unless you're Amazon, which has yielded to pressure to collect sales tax in some states where it does not have a physical presence.
Note "collect sales tax." In at least some states, e.g. Massachusetts, residents and (I assume) businesses are asked on their state tax returns to report out-of-state purchases consumed within the state on which they are then responsible for use taxes equivalent to sales taxes.
Amazon "yielded" to that pressure because they intend to have same-day delivery in every state. There's no way to do that without a presence in every state. So Amazon was going to be paying sales taxes anyway.
Since they've decided to pursue a business strategy that has them paying sales taxes, they're pushing for an agreement that has competitors paying taxes even without a presence in that particular state.
You could probably make a good business around collecting taxes from customers. Piggyback on stripe, provide an API to take in address and service type, then return the appropriate tax amount.
They're pretending Chicago's 2015 budget shortfall is $300 million instead of $850 million because they're ignoring the $550 million they owe to police and fireman pensions; putting that off until October.
The expected-to-raise $12 million "cloud tax" will cover 4% instead of 1.4%. So that's good news...
After selling parking meter collection rights, and trying to sell Midway, surely they still have some other public infrastructure cash flows left they can sell off and then squander the proceeds when the check clears.
Does Netflix even have a physical presence in Chicago? How would the city be able to compel Netflix to pay otherwise? I'm thinking about how I paid no sales tax for Amazon purchases until Amazon opened a warehouse in my state.
They could have or want to have servers in Chicago. They need to cache content close to users, so the probably have hardware like OpenConnect [1] all over creation.
If used widely, wouldn't this basically kill every software startup? A new startup with, say, 10,000 users can't possibly afford to file hundreds of pages of tax paperwork in each of 2,000 separate local jurisdictions.
With Chicago's famous history as a bastion of innovation in corruption, this doesn't really surprise me at all. Those pockets need filling, people, and who better to squeeze for cash than those silly Internet businesses? They aren't even real!
New York has had Republican/Independent mayors for 20 of the last 21 years. And you ignore that heavily taxes cities controlled by democrats are some of the most impoverished, crime ridden and unsuccessful in the US. Namely, Detroit, Baltimore, Oakland, New Orleans.
This is pure FUD, coming from a seemingly very targeted throwaway account. Thinking that crime in a city is directly correlated with the political party of the mayor of that is naive at best.
Giuliani likes to tout that he turned NYC around, but his direct role in it is far from a settled matter. TL;DR: crime dropped everywhere in the early 90s, not just in NYC. [1]
Plus, how does your fearmongering about the current mayor jive with the fact that he brought in the same police commissioner that Giuliani did back when he took office?
They also make it difficult for anyone that isn't extremely wealthy to live there (the average apartment to rent in all of the cities you mention is $3000+) and the more restrictions and taxes for businesses make it so only huge companies can survive.
I never understood why a community of business owners applauds more and more taxes and restrictions, which will further make it difficult for you to run an actual business.
Edit: I know why. Because most people here don't run businesses or startups.
I'm not sure extra taxes and restrictions really make it harder to run most businesses. You just pass the extra cost on to your customers. That customer in Manhattan has enough money to pay $4000 each month for rent. He can afford to pay twice as much money for your service as people in rural areas.
Just imagine telling "Fine, we're out. Enjoy telling your city why they can no longer have Netflix".