NY's Top Court To Consider Taxability of Strip Club Performances

In times of financial trouble, states look to maximize their revenues wherever possible. New York has expanded its tax compliance efforts and looked to pick up revenues in more obscure places.

One of those places was a New York strip club. The club, which charges a cover fee, had argued that it was exempt from sales tax under two exemptions relating to admissions and performances. Now, the matter is set to appear on the Court of Appeals calendar:

For years, Nite Moves, an adult "juice bar" on Route 9, has been fighting the tax law -- first in an administrative hearing that ultimately went before the state Tax Appeals Tribunal and then in state Supreme Court. A 2005 audit by the state Division of Taxation concluded the club owed nearly $125,000 in sales tax, plus interest for door admission charges and private dance sales. The Appellate Division of state Supreme Court upheld that decision.
In a motion before the Court of Appeals, Utah attorney W. Andrew McCullough, representing 677 New Loudon Corp., which operates Nite Moves, claimed the club was entitled to the sales tax exemptions on two levels, both of which define entertainment as "dramatic or musical arts performances."

Broadway and local theaters -- such as Proctors in Schenectady and the Palace in Albany -- do not charge state sales tax on their tickets, said Ed Walsh, a spokesman for the state Department of Taxation and Finance.

On Monday, McCullough, an Albany native, said, "I'm excited. It's been one of my things in life to get a case before the Court of Appeals. I think the Appellate Division blew it, and it looks like someone is finally listening."

Iin his motion brief, McCullough argued the Tax Appeals Tribunal and the Appellate Division misinterpreted the statute. He said the language in the tax statutes apply to the club.

The earlier decisions on the tax at Nite Moves is "content-based, as it is applied based on the distaste of the tribunal for the dance performances presented by petitioner," the club argued.
The top court will have to decide if the lower court misinterpreted the tax exemptions, or, if by taxing Nite Moves, it violates the club's constitutional rights.

Robert M. Goldfarb of the state attorney general's office represents the state tax commissioner, and in papers submitted to the high court argued there was nothing to suggest the tax was being applied in a discriminatory manner.

Tax Law § 1123 exempts charges for admission to a roof garden, cabaret, or similar place for the purpose of attending a dramatic or musical arts performance held there. Further, New York law exempts choreographed performances, which qualify for the exemption for dramatic or musical arts performances under Tax Law § 1105. It would appear that the Department of Tax and Finance is misreading the tax law.