AI Taxed In Chicago? ChatGPT Faces Hefty 9% Markup

ChatGPT, OpenAI’s popular artificial intelligence (AI) platform, now falls under Chicago’s Personal Property Lease Transaction Tax, which tacks on a 9% tax for users of its premium version as of Oct. 1.

Wait, What? Chicago tax law states that charges incurred primarily for the ability to use a provider’s computer to input, modify, or retrieve data are taxable.

Transactions that exemplify the tax scope include online database searches, obtaining various listings, and cloud computing services like Software as a Service (SaaS).

ChatGPT, providing AI-powered answers and compositions, is thus interpreted to fit Chicago's taxable category.

For Chicagoans aiming to sidestep the added cost, the free version of ChatGPT remains untaxed. More to that, if a resident’s primary usage of ChatGPT is outside city limits, they aren't beholden to the tax.

The law also carves out exemptions for small businesses, government bodies, educational institutions, and a slew of other entities.

A Little Deeper: Initially conceived to tax tangible assets like rented buildings and cars, Chicago's lease tax law expanded its reach to now include computer software, capturing modern services like AI.

Platforms like ChatGPT, backed by Microsoft Corp MSFT, are becoming more intertwined with business and personal operations. Yet, they’re colliding with tax regulations intended for more traditional lease structures.

Proponents of the tax might view the measures as necessary to counterbalance fiscal shortfalls, but others might argue that Chicago is sending a message that it prioritizes tax revenue over fostering a business-friendly environment.

With Chicago's business landscape already grappling with challenges, including city pension debt and shifting office dynamics, the addition of software service taxes adds another layer to the city’s complex fiscal tapestry.

Read Next: EXCLUSIVE – Gov. Pritzker Champions Chicago’s Crucial Role In Illinois Cannabis Equity Push