Chicago Implements 9% Tax on Premium Version of AI Platform ChatGPT, Free Version Remains Untaxed
Chicago has made a surprising move by subjecting OpenAI’s popular artificial intelligence (AI) platform, ChatGPT, to its Personal Property Lease Transaction Tax. Starting from October 1st, users of ChatGPT’s premium version will have to pay an additional 9% tax. The city’s tax law states that charges incurred for the ability to use a provider’s computer for data-related activities are taxable, which includes services like online database searches, cloud computing, and Software as a Service (SaaS).
ChatGPT, known for providing AI-powered answers and compositions, falls under this taxable category in Chicago. However, users can still utilize the free version of ChatGPT without being subjected to the tax. Furthermore, residents who primarily use ChatGPT outside the city limits are not obligated to pay the tax.
To ensure an inclusive approach, the tax law carves out exemptions for small businesses, government bodies, educational institutions, and various other entities. While the law was initially designed to tax tangible assets like rented buildings and cars, it has now been extended to include computer software, including AI platforms like ChatGPT.
This development highlights the growing integration of platforms like ChatGPT, which is backed by Microsoft Corp, and the challenges they face when encountering tax regulations primarily meant for more traditional lease structures. Some proponents of the tax may view it as necessary to address fiscal shortfalls, while others argue that it sends a message prioritizing tax revenue over fostering a business-friendly environment in Chicago.
Adding software service taxes to an already challenging business landscape in Chicago, which includes city pension debt and shifting office dynamics, further complicates the city’s financial situation.
In summary, Chicago has introduced a 9% tax on the premium version of the AI platform ChatGPT, while the free version remains untaxed. This move emphasizes the need to adapt tax laws to modern services like AI, but questions remain about the impact on businesses and the overall business environment in the city.
