For over 50 years, Bloomberg Tax’s renowned flagship daily news service, Daily Tax Report® has helped leading practitioners and policymakers stay on the cutting edge of taxation and...
Nov. 7 — Larry Flynt’s Hustler Club owes sales taxes on the $24 million in “Beaver Bucks” currency used by patrons at the men’s entertainment club, a state appellate court ruled ( CMSG Rest. Group, LLC v. State , N.Y. App. Div., No. 2016 NY Slip Op 07280, 11/3/16 ).
The New York Taxation and Finance Department properly imposed sales tax on the club’s in-house currency for tipping topless dancers, floor hosts and bartenders as well as gaining entry into private rooms for lap dances, Justice Peter Tom wrote Nov. 3 for a unanimous five-judge panel of the state Supreme Court Appellate Division, First Department.
The panel rejected the club owners’ argument that they had been singled out for the tax as a way of penalizing the expressive conduct of nude exotic dancing, finding the tax akin to amusement tax charged for admission to sporting events, variety shows, carnivals and the like.
The decision backed a state tax liability bill of more than $2.1 million, plus interest but no penalty, for a period from June 2006 through November 2008.
An attorney for the club owners, Henry L. Saurborn of Kaiser Saurborn & Mair PC in New York, told Bloomberg BNA Nov. 7 that they intend to appeal the ruling.
The case challenged the state’s amusement and cabaret sales taxes as infringing on the club’s right to free speech by imposing a differential tax based on disfavored content.
However, a state Division of Tax Appeals administrative law judge backed the department, calling the club “a place of amusement, plain and simple,” where “performers remove their clothing and create an aura of sexual fantasy.”
Any “movements, whether dance moves or other choreography, that comprise an entertainer’s routine and that appeal to the patron, are ancillary to the ultimate service sold, which is sexual fantasy,” the ALJ said.
In January 2015, the state Supreme Court, New York County, also rejected the club’s constitutional arguments on the merits, in addition to barring the complaint on procedural grounds.
In rejecting the club’s appeal, the appellate panel turned aside “contentions that the laws are unconstitutionally vague or deny them due process.” It further found that the club hadn’t exhausted exclusive administrative remedies on its argument that the performances were exempt from sales taxes.
The appellate opinion drew on a 2012 decision by the Court of Appeals, the state’s highest court, upholding sales taxes in an exotic dance “juice bar” case with similar facts ( 677 New Loudon Corp. v. New York, N.Y. Tax App. Trib., No. 157, 10/23/12 ).
In contrast to that case, which involved admission charges and private performance fees, the tax in the Hustler Club case was imposed only on the sale of the multi-use currency, not the dancing itself, the judge said.
Justices David B. Saxe, Rosalyn H. Richter, Judith J. Gische and Troy K. Webber concurred in the Nov. 3 opinion.
To contact the reporter on this story: John Herzfeld in New York at email@example.com
To contact the editor responsible for this story: Ryan C. Tuck at firstname.lastname@example.org
Text of the decision is at http://src.bna.com/jUB.
Copyright © 2016 The Bureau of National Affairs, Inc. All Rights Reserved.
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to email@example.com.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to firstname.lastname@example.org.
Put me on standing order
Notify me when new releases are available (no standing order will be created)