The Lawletter Vol 38 No 4
On Tuesday, October 23, 2012, the Court of Appeals of New York, in a 4‑3 decision, ruled that lap dances do not qualify for the same sales tax exemption as do other "dramatic or musical arts performances," such as a Madonna concert or a Broadway show. 677 New Loudon Corp. v. State Tax Appeals Tribunal, 979 N.E.2d 1121 (N.Y. 2012).
The court's ruling stemmed from a 2005 audit of the Nite Moves strip club in Latham, New York. After an investigation, the New York Tax Appeals Tribunal demanded $124,921, based on unpaid sales taxes on cover charges and "performance fees," which were construed to mean fees for private dances. The petitioner/appellant, the operator of an adult "juice bar," contended that the admission charges and private dance performance fees that it collected from patrons were exempt from state sales and use taxes. The court of appeals agreed with the appellate division's ruling that the petitioner had failed to meet its burden of proof that a tax exemption applied to those charges.
The portion of the sales tax in question imposes a sales tax on "'[a]ny admission charge' in excess of 10% for the use of 'any place of amusement in the state.'" Id. at 1122 (quoting N.Y. Tax Law § 1105(f)(1)). The legislature defined places of amusement that are subject to this tax to include "[a]ny place where any facilities for entertainment, amusement, or sports are provided." Id. (quoting N.Y. Tax Law § 1101(d)(10)). As the court of appeals observed, the tax therefore applies to a vast array of entertainment, including attendances at sporting events such as baseball, basketball or football games; collegiate athletic events; stock car races; carnivals and fairs; amusement parks; rodeos; zoos; horse shows; arcades; variety shows; magic performances; ice shows; aquatic events; and animal acts. Plainly, no specific type of recreation is singled out for taxation.
The court went on to explain that the legislature had created the exemption from taxation for admission charges to "dramatic or musical arts performances," N.Y. Tax Law § 1105(f)(1), for the purpose of promoting cultural and artistic performances in local communities. The petitioner argued that performances regarded as "adult entertainment" qualified for the exemption because exotic stage and couch dances were musical arts performances. The court, pointing out that it was the petitioner/taxpayer's burden to prove the applicability of any exemption from taxation, ruled that a determination by the Tax Appeals Tribunal could not be overturned unless "erroneous, arbitrary or capricious." 979 N.E.2d at 1123 (quoting Grace v. N.Y. State Tax Comm'n, 332 N.E.2d 886 (N.Y. 1975)). The court found that given the fact that the performances in question were carried out in "private rooms," the petitioner had failed to prove that the performances qualified as choreographed dance routines presented in a stage performance.
The court further concluded that it was not arbitrary, capricious, or an error of law for the Tax Appeals Tribunal to have discredited the petitioner's expert witness's opinion that the private performances qualified for the exemption because they were the same as the routines presented on the main stage. The evidence showed that the witness had neither seen nor had personal knowledge of what occurred in the private areas. As the court stated:
[S]urely it was not irrational for the Tax Tribunal to conclude that a club presenting performances by women gyrating on a pole to music, however artistic or athletic their practiced moves are, was also not a qualifying performance entitled to exempt status.
In the dissenting judge's view, the exemption included no requirement that the performance be technically "choreographic," and there was no valid distinction between highbrow dance and lowbrow dance. As stated in the dissenting opinion:
"We question how much planning goes into attempting a dance seen on YouTube," the Tribunal remarked. It is undisputed that the dancers worked hard to prepare their acts, and that pole dancing is actually quite difficult, but the Tribunal decided that they were not artists, but mere athletes: "The degree of difficulty is as relevant to a ranking in gymnastics as it is in dance." The Tribunal seems to have missed the point that "ranking," either of gymnasts or dancers, is not the function of a tax collector.
Id. at 1124 (Smith, J., dissenting).
As the dissent succinctly stated: "Under New York's Tax Law, a dance is a dance." Id.