Lessons from Chicago’s cloud tax proposal

By Bob Greenlee  |  August 19, 2015

The revenue-starved City of Chicago this year floated the idea of extending existing taxes to streaming services and cloud storage services. When the tech community pointed out that cloud storage is the single largest service purchased by the City’s fastest growing sector, the City wavered. And for a while last week, it even seemed like the City was going to let the cloud storage tax fade quietly away. But as pro-tax advocates have started to resuscitate the proposal, it is time to revisit it and how businesses and policy-makers can use its lessons to help communicate better. Because when it comes to taxes, tech and government are still speaking different languages.

City Delays

The initial response from the tech community to the cloud storage tax was shocked disbelief. After all, under Mayor Emanuel, the City of Chicago has been a vocal suitor of the tech community. The City supplied funding and has been a strong supporter of the wildly successful 1871 , the Mayor has had several wins bringing technology companies like Motorola Mobility back into the City, and the Mayor’s ChicagoNext initiative has provided a valuable forum for entrepreneurs to provide guidance on how to make the City safe for innovation. Within government, policy-makers like David Spielfogel have always been accessible and been fair to the tech community. So what explains the disconnect?

WBC

When you consider the genesis of the proposal from a government perspective, the story becomes more understandable. All governments are inherently siloed, and the development of revenue proposals generally happens in a different silo from those responsible for promoting business. Add in the reasonable expectation that groups facing new taxes will oppose them, and you will find the groups that develop proposals tend to be tight-lipped about their proposals (internally and externally) until it is too late — look at President Obama’s day-long idea to tax IRAs. The result is not always bad policy (though taxing B-to-B services is always bad economic policy) as much as ill-informed policy. And if politics is making decisions between competing interests, ill-informed policy invariably leads to bad politics.

How should businesses and funders reduce the silo effect?

First, know who your friends are and let them help you. Businesses should take an active role in making government allies and educating them about what matters to the business. While it might seem counter-intuitive, unless you consistently let allies know your pain points, they can’t effectively plead your case when internal decisions are to be made.

Second, don’t make the mistake of thinking someone else will advocate for you. Despite the alphabet soup of groups who theoretically represent the tech community in Chicago, there was no one voice that consistently made the case against the tax — nor is any voice more authentic than a founder.

Third,for the venture community, don’t be afraid to use your influence politically on behalf of your portfolio companies. Even if cash were not king in politics, cities and states (particularly away from the coasts) are starved of venture funding. Even the threat that misguided tax policies could push your investment capital to more favorable jurisdictions will have immediate and gratifying results.

Last, don’t mistake quiet for dead. Though the cloud storage tax has been “delayed until January,” and likely will never fully recover, the City still has a revenue problem. The tech community should demand a firm statement from the Mayor that there will be no repeat of the cloud tax. His voice is the one that carries even in the siloes of government most divorced from business realities.