The gaming division of Sony Corp. wrote a check for $1.2 million to Chicago to settle unpaid liabilities under the city’s first-in-the-nation “Netflix tax,” suggesting some tech and entertainment companies are choosing to pay instead of fight the tax regime in court.
A confidential settlement obtained May 15 through a Freedom of Information Act request revealed the cash payment. The settlement total, paid Jan. 15, covers Sony Interactive Entertainment LLC’s amusement tax liabilities for gaming charges paid by Chicago customers between April 1, 2017 and Oct. 31, 2018. Chicago waived any interest and penalties that might have been applied to Sony’s delinquent tax bill.
During earlier negotiations with Chicago’s Department of Finance, Sony disputed its liability under the amusement tax, asserting it lacked nexus, or physical presence, with the city. The company eventually conceded it had nexus from April 2017. In settling the matter, Sony made no admission of tax avoidance.
The settlement came just weeks after San Mateo, Calif.-based Sony began collecting Chicago’s 9% amusement tax on streaming services—the so-called Netflix tax—in November 2018.
The company acknowledged collecting the tax on receipts from PlayStation Plus, PlayStation Now, PlayStation Vue, PlayStation Music, PlayStation Video on demand, and PlayStation Video live events from customers with a billing address in Chicago. Sony’s commitment to collect the tax followed a short-lived legal challenge and months of denial over its duties under the Windy City’s controversial tax program.
The development regarding Sony comes a day after Bloomberg Tax reported similar settlements pertaining to the ticketing and event-planning company Eventbrite Inc. and the cinema ticketing company Fandango. Eventbrite paid Chicago $799,000 to remedy four years of amusement tax liabilities. Fandango agreed to pay Chicago $70,000 to remedy an amusement tax liability dating back to 2007.
Sony didn’t immediately respond to request for comment on the settlement.
Some Tech Firms Still Fighting
The settlements involving Sony and Eventbrite are just the latest developments under Chicago’s tax on streaming entertainment services.
Under Amusement Tax Ruling No. 5, Chicago created a revenue program in 2015 that extended the city’s amusement tax to online entertainment providers such as: Apple and Spotify in the music-streaming sphere; Netflix, Hulu, and Amazon Instant Video for television and movies; and, Sony, Microsoft and Nintendo Co. for gaming.
Chicago’s tax, thought to be the first of its kind in the nation by a large municipality, has triggered considerable litigation, including a case that involved Sony.
The libertarian legal advocacy group the Liberty Justice Center filed a constitutional challenge in Cook County Circuit Court shortly after the tax launched on behalf of customers of Netflix, Hulu and Spotify. The advocacy center lost on Chicago’s motion to dismiss in a ruling issued in May 2018. The case recently shifted to the Illinois Appellate Court.
Tech giant Apple has filed a similar challenge, but that case is on hold pending a decision by the appeals court in the Liberty Justice Center’s case.
And the gaming industry, through the Entertainment Software Association, sued Chicago in June 2017. The lawsuit characterized Chicago’s tax on streaming entertainment as a discriminatory tax on electronic commerce activity in violation of the Internet Tax Freedom Act. Sony is a member of the ESA. The association voluntarily withdrew the lawsuit last year.
Compliance with State Tax Codes
Sony, in an online announcement to customers about Sony Interactive’s compliance with state and local tax obligations, acknowledged it collects taxes beyond sales taxes in some jurisdictions for transactions through its PlayStation Store.
“In certain areas, state/province in the U.S. and Canada and local laws require PlayStation® Store to collect applicable taxes separately from sales tax,” Sony said.