Chicago Rolls Out Social Media Amusement Tax

UPDATE: The tech industry association NetChoice has filed suit against the City of Chicago over its newly enacted Social Media Amusement Tax (SMAT). The case, NetChoice v. City of Chicago, was filed on March 13, 2026, in the Circuit Court of Cook County, Illinois.

NetChoice argues that the tax is unlawful on four grounds:

1. The tax is preempted by the federal Internet Tax Freedom Act (ITFA) because it discriminates against electronic commerce by applying only to online social media businesses and not to similar offline services.
2. The ordinance violates the Illinois Constitution because it functions as an unauthorized occupation tax that the City is not permitted to impose without express authorization from the General Assembly.
3. The tax violates the First Amendment by singling out expressive platforms, incorporating content‑based exemptions (such as for “bona fide news”), and burdening a select group of speakers.
4. The tax violates the Commerce Clause because it is not fairly apportioned and fails the internal consistency test—meaning identical taxes in other jurisdictions could result in multiple taxation of the same user.

The Sales Tax Institute will continue monitoring the lawsuit and provide updates as it develops. (NetChoice v. City of Chicago, Complaint for Declaratory Judgment and Injunctive Relief, filed March 13, 2026, in the Circuit Court of Cook County, Illinois)

Original Post: Beginning January 1, 2026, Chicago will implement a Social Media Amusement Tax (SMAT) on social media businesses who collect consumer data from more than 100,000 Chicago consumers in a calendar year. The rate will be $0.50 for each Chicago consumer over 100,000, calculated monthly; each month will count as a separate reporting period. Monthly payments will be due by the 15^th of the following month, while the return will need to be filed annually in August. The first tax return period will be for January 1, 2026 – June 30, 2026, and will be due August 17, 2026.

The Revenue Ordinance defines “social media businesses” as those who are for profit entities who provide access to “social media” to individuals and then collect, maintain, use, process, sell, or share consumer data other than contact information that supports business activities. Further, “social media” is defined as websites, applications, products, and/ or internet platforms which allow consumers to view, share, and engage with images, videos, and audio presented in many formats, which include (but are not limited to) performances, artificial intelligence, and live streams. “Consumer data” is defined as information that identifies, relates to, describes, or could reasonably be linked to a consumer, whether or not it was directly submitted to the social media business.

The new SMAT offers exclusions for businesses such as internet search providers, service providers, certain streaming services, and cloud computing services, among others. All business entities within a controlled corporation group are considered as a single entity so the SMAT is not applied for intercompany data transfers. News entities are also excluded from the SMAT, but the terms for a broader exclusion for a “bona fide news website” or similar are undefined, so it is unclear who may qualify for the broader exception.

The Ordinance is also unclear about how social media businesses should know or monitor which users are Chicago consumers as opposed to those who are only temporarily in Chicago. Though the business may create categorization standards for administrative ease in analyzing data to see which consumers can reasonably be considered Chicago consumers, the burden of proof to establish if a user is outside of Chicago falls on the social media business. There is also no credit for similar taxes paid to other jurisdictions. This lack of clarity could lead to trouble enforcing the tax.

Chicago social media businesses and users should be aware of this tax as it goes into effect. Businesses will need to pay attention to where consumers are located and ensure records are carefully and accurately kept to support tax filings. Consumers will want to ensure they are using the most current and accurate locations when interacting with social media. (City of Chicago Revenue Ordinance, Article VIII)