Strip Club Not Tax-Exempt, Rules Court

June 13, 2011

In his 1896 essay, author Leo Tolstoy pondered, “What is art?” Art, he decided, had to infect the audience. He wrote, “[t]he stronger the infection, the better is the art as art.” Associate Justice John C. Eagen, Jr., of the New York State Supreme Court Appellate Division apparently disagrees. In New York State, “live dramatic, choreographic or musical performance[s]” are exempt from sales tax. But as the court informed adult “juice bar” Nite Moves last Thursday, this exemption does not extend to the exotic dance industry. This ruling came despite expert testimony, which included a cultural anthropologist, who after visiting Nite Moves and thoroughly examining the club’s DVD collections, declared the performances to be “unequivocally live dramatic choreographed performances.”

Nite Moves found itself in court after state tax authorities determined in 2005 that the club was delinquent on $125,000. The Appellate Division reasoned that because the club did not require its dancers to have received formal training and dancers used videos and peers’ suggestions, the club’s argument lacked adequate proof that the dances were actual artistic performances.

Though strip clubs (and all other forms of amusement) have been covered by state sales tax since 1965, it appears that some club owners have been unaware of the taxes on the actual dances and are now concerned about the livelihood of their businesses. When interviewed, manager Steve Johnson of the Lace Gentleman’s Club stated:

We would have to pay every time someone gets a dance? It makes no sense. It’s just another way to take money from people… It would kill the business even more. It’s ridiculous.

This is the second time within a year that New York strip clubs have made tax news, as it was reported last November that several NYC clubs were exempted from property tax under the “Industrial and Commercial Incentive Program”-an economic development relic of the 1970s buried deep in the tax code.

While this latest episode is a humorous relief from the more typical tax issues at hand, it highlights the implications of special exemptions in the tax code, and the role of careful definitions. One may recall the famous Pringles episode of 08-09, in which the British courts flip-flopped on the tax status of the … well … what would you call them? It was finally resolved that a Pringle was not just a “savory snack” to be enjoyed tax-free like most grocery items, but, in fact, it was a taxable potato chip.

As New York has defined this exemption to be for “live dramatic, choreographed or musical performances,” it is entirely possible that Nite Moves and others will begin formal choreographing to achieve tax-exempt status.

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