Seattle, Wash. or Bomont, Ga.?
Pour another bucketful of cold water on Seattle Mayor Mike McGinn’s dreams of a bohemian nightscape of dusk-to-dawn entertainment options in the Emerald City.
In what seems to be a conscious effort to draw comparisons to the choreographically repressed town elders from “Footloose,” auditors from the Washington State Department of Revenue are pressing hard to levy a loosely defined retail tax on cover charges for places, as one agency tax specialist put it, patrons have the opportunity to “sweat.”
The Department of Revenue discovered its right to the “dance tax” in a 1990s revision of state tax codes covering amusement and recreational activities, changes that expanded an existing tax to also cover “charges made for providing the opportunity to dance.”
From The Stranger, the Department of Revenue’s explanation of the confusing tax seems only to add a dash of the bizarre:
Other businesses that fall under the law include karaoke bars, comedy clubs, and any other venue that provides opportunities for people to “sweat,” according to [Bob Palen, a tax specialist at the Department of Revenue]. He explains it this way: “If you pay a cover charge to get in and you’re just sitting around listening to the music or whatever, if you can’t participate, there’s no sales tax. But if there’s a dance floor where you could dance—you don’t have to dance but the opportunity is there—or if there’s a microphone available for standup comedy or karaoke, there’s a tax. It’s a tax on the opportunity.”
Taxing the opportunity to sweat? Don’t tell First Lady Michelle Obama who’s leading a national movement to get people to sweat more.
Although the original intent of the law was to capture some of money being generated by a then-booming aerobics craze, the vague wording of the code (and some would say creative interpretation by tax wranglers) has become a gill net for auditors in which many nightclubs and entertainment venues claim to have been ensnared without notice. The retroactive taxes levied by auditors on some bewildered operators have been in the mid six figures.
The latest to be caught in the net is the Century Ballroom, a downtown Seattle dancing venue that owners say faces closure because of a $90,000 bill due soon for penalties on unpaid dance taxes, taxes they believe were assessed without notice after the Department of Revenue creatively reinterpreted the law.
From an advertisement on the Century Ballroom website of an event designed to raise enough funds to keep the doors open:
Two years ago Washington’s Department of Revenue reinterpreted an obscure tax and, without notice, started applying it to businesses such as ours. This has become known as the “opportunity to dance” tax.
…[T]he State started to enforce this tax by selectively auditing several local nightclubs and one dance hall, the Century Ballroom. We are now faced with a penalty of $90,000, due in three months. With the threat of this looming for almost two years, we have been altering our programming and adjusting prices while negotiating with the State. Unfortunately, our efforts have fallen far short of raising the required funds.
For those who may feel that businesses like the Century Ballroom should have to pay their fair share along with everyone else, rest assured that the dance tax is not the only revenue the state draws from such places. Retail sales taxes on the sale of food, liquor, etc., commercial property taxes, taxes imposed on all manner of must-haves like liability insurance, those and others exist on the way to a bottom line for entertainment providers that is typically thin to begin with.
Several legislators in Olympia have proposed a fix that could realign the relevant tax code to cover a more logical set of activities, in essence repealing the “opportunity to dance tax.” Senate Bill 5613 would revise the WAC to clarify that cover charges are not retail sales.
SB 5613 is currently slated for a public hearing on Thursday, Feb. 21 at 3:30 pm.