• by Wendy Davis , Staff Writer @wendyndavis, July 1, 2015

Chicago residents who stream video through paid services like Netflix are getting hit with a 9% price hike, thanks to the city's new “amusement tax.”

The amusement tax applies when people stream TV, movies, music and or online games within Chicago. Residents who download the same material won't be hit with the tax, according to the law firm Reed Smith, which recently blogged about the new law.

While the measure require consumers to pay tax, it doesn't obligate Web companies to collect the money. But at least one large company -- Netflix -- reportedly will do so. "Jurisdictions around the world, including the U.S., are trying to figure out ways to tax online services," a Netflix representative told The Verge. "This is one approach."

Another new 9% “cloud computing” tax applies when Chicago residents use remote platforms, including Amazon Web services.

These types of taxes obviously could put a big crimp in Web companies' revenue -- especially if other cities follow Chicago's lead.

But Chicago's new tax requirements -- the result of two rulings issued on June 9 by the Chicago Department of Finance -- might not withstand a court challenge, according to Reed Smith.

“There are strong arguments that both rulings run afoul of provisions in the Federal Telecommunications Act, the Internet Tax Freedom Act, and federal and Illinois constitutional limits on taxation,” the firm's lawyers write.

The Internet Tax Freedom Act, which dates to 1998, broadly prohibits state or local governments from charging for digital bits. That law is slated to sunset this October, but the House has already passed a permanent version.

The law firm adds that the tax rulings “gloss over many details of applicable federal law and how telecommunications and computer networks operate, and assume the simplest factual scenarios that do not realistically comport with how many providers and their customers transact business.”

Whether the tax proves lawful or not, Chicago almost certainly will have to defend the measure in court.

“I can't imagine why there wouldn't be litigation,” Santa Clara University law professor Eric Goldman tells MediaPost. “Like most such taxes, if it appears to work, every taxing jurisdiction will copy it.”