The city of Chicago has made a bold move to increase its cloud computing tax from 9% to 11%, aiming to generate additional revenue. While the intention might seem innovative on the surface, this decision risks unintended consequences that could harm the city’s long-term goals. As someone with decades of experience in the tech industry, I’ve witnessed similar strategies unfold, and they rarely deliver the desired outcomes. The story typically ends the same way: businesses leave, and the revenue dries up.
This isn’t about opposing taxes; taxes are essential for funding critical public services. However, selectively targeting cloud computing—a foundational technology for modern businesses—carries significant risks. Unlike luxury goods such as high-end watches or handbags, cloud computing is neither geographically bound nor a discretionary expense. It’s the infrastructure enabling countless companies to operate. Chicago’s politicians, led by Mayor Brandon Johnson, are banking on this tax increase to help address a $1 billion budget shortfall, expecting to raise an additional $128 million. But they overlook a key fact: cloud computing is highly mobile. Companies can relocate their operations to regions with more favorable policies, taking not only their cloud-based revenue but also their broader tax contributions with them.
This strategy is especially puzzling given Chicago’s recent efforts to establish itself as a tech hub, often referred to as the “Silicon Valley of the Midwest.” The city has seen notable successes, such as Google’s purchase of a major downtown property and local startups raising a record $19 billion in 2022. However, high-profile departures like Citadel, Boeing, Caterpillar, and Tyson Foods cast a shadow over these achievements. These departures weren’t solely driven by taxes, but policies like the cloud tax hike only add fuel to the fire, reinforcing the perception that Chicago is becoming increasingly inhospitable to businesses. As Chris Deutsch of Lofty Ventures aptly put it, “They’re just going to keep ratcheting up these taxes, and it’s going to hurt business and the entire tech community here.”
Chicago is one of only a handful of cities in the United States that taxes cloud computing, alongside Denver and Washington, D.C. Instead of fostering growth, these regions risk alienating potential investors and innovators. Many companies are already wary of building operations in areas with such policies, preferring to establish roots in more business-friendly environments. The impact of this tax won’t just be the loss of 11% in additional costs—it will be the loss of opportunities, talent, and long-term growth. If the city continues down this path, the aspiring tech hub may find itself watching from the sidelines as other regions reap the benefits of forward-thinking policies and innovation-driven economies.