Chicago Cloud Tax

Tech entrepreneurs took to city hall in Chicago to complain about the tax ruling put in effect last week. They claimed the tax, which extended a nine percent lease tax to cloud-based technology services, would hurt business and discourage startups in Chicago.

Spokeswoman for Mayor Rahm Emanuel said in statement, “Based on feedback we have received from Chicago’s vibrant start-up community, the administration will be taking measures to provide relief to small businesses so as not to put them at a competitive disadvantage. Proposals are being discussed with stakeholders, and we will release further guidance later this month.”

Relief may include exempting small businesses based on income.

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Harper Reed, founder of Modest, a mobile-commerce technology provider to small and mid-sized businesses, said, “My initial concern was that I might have to charge our Chicago customers more, which is kind of a bummer. Then there was the other part of it . . . where all cloud services would be taxed. This is a big thing.”

This would affect startups that run their business from the cloud, using big businesses such as Amazon Web Services, Google Cloud, Microsoft Azure or IBM Cloud Services, that have been switching to the cloud.

City Hall has not provided a clear interpretation of the law, worrying tech entrepreneurs.  J.B. Pritzker, a venture capitalist who is one of the most prominent leaders of the tech community, has commented, “If they don’t want to lose momentum in the startup community, it has to be more narrowly applied. Most startups are not particularly well-funded or making money. To the extent there’s an interpretation hat would bear down on those companies and take capital out of their nascent, small treasure chests, it’s the wrong place to look.”

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