NY Appeals Court: Tax Applies to Adult Club Private Dances

NEW YORK — An Oct. 23 ruling by the New York Court of Appeals has affirmed the decision of New York's Tax Appeals Tribunal to deny state sales and use tax exemption status to an adult "juice bar" for fees it charges patrons for admittance and also for private dances offered at the club. The ruling was 4-3, with Associate Judge Robert S. Smith writing a dissent that found "significant constitutional problems" with the tribunal's decision.

According to an analysis of the case by cchgroup.com, both the tribunal and the Appeals Court were of the opinion that the dance routines under question "were for adult entertainment and not choreographed performances for a theater as contemplated by the exemption for dramatic or musical arts performances under Tax Law §1105(f)(1)." Under that law, exemptions are made only for “dramatic or musical arts performances.”

The appellant, who operates an adult "juice bar" in Latham, New York, had argued that it is entitled to tax exempt status, but also shouldered the burden of proof to make its case. According to the Appeals Court ruling, "In order for petitioner to be entitled to the exclusion for 'dramatic or musical arts performances,' it was required to prove that the fees constituted admission charges for performances that were dance routines qualifying as choreographed performances."

The tax tribunal had found that the petitioner "failed to meet this burden as it related to the fees collected for the performances in so-called 'private rooms'; none of the evidence presented depicted such performances and petitioner's expert's opinion was not based on any personal knowledge or observation of "private" dances that happened at petitioner's club."

Somewhat defensively, however, the Appeals Court bent over backwards to explain the alleged evenhandedness of the tribunal's decision. "Clearly," stated the ruling, "it is not irrational for the Tax Tribunal to decline to extend a tax exemption to every act that declares itself a 'dance performance.' If ice shows presenting pairs ice dancing performances, with intricately choreographed dance moves precisely arranged to musical compositions, were not viewed by the Legislature as 'dance' entitled a tax exemption, surely 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. To do so would allow the exemption to swallow the general tax since many other forms of entertainment not specifically listed in the regulation will claim their performances contain tax-exempt rehearsed, planned or choreographed activity."

In his dissent, however, Judge Robert S. Smith took severe issue with the actions of the tax tribunal, writing, "The ruling of the Tax Appeals Tribunal, which the majority upholds, makes a distinction between highbrow dance and lowbrow dance that is not to be found in the governing statute and raises significant constitutional problems."

The statutory language, he continued, is not nearly as nuanced as the tribunal made it out to be. "I find it clear that the Legislature used 'choreographic' in its statutory definition of '[d]ramatic or musical arts admission charge' merely as a synonym for 'dance'," he wrote. "Strictly speaking, it is true, not all dance is choreographed—some may be improvised—but it is absurd to suggest (and I do not read the majority opinion to suggest) that the Legislature meant to tax improvised dance while leaving choreographed dance untaxed. In any event the record shows, without contradiction, that the performances here were largely planned, not improvised.

"Thus," he continued, "the only question in the case is whether the admission charges that the State seeks to tax were paid for dance performances. There is not the slightest doubt that they were. That is proved by the video introduced into evidence before the Tribunal, and the testimony of two witnesses, an executive of petitioner and a dancer, with personal knowledge. The people who paid these admission charges paid to see women dancing. It does not matter if the dance was artistic or crude, boring or erotic. Under New York's Tax Law, a dance is a dance."

In finding against the juice bar, however, both the tribunal and the majority introduced a new, subjective bar, opined Smith.

"The majority, and the Tribunal," he wrote, "have implicitly defined the statutory words 'choreographic . . . performance' to mean 'highbrow dance' or 'dance worthy of a five-syllable adjective.' The admission charges for these performances are taxable because the performances are, in the majority's view, not 'cultural and artistic'."

The tribunal, he added, had literally and inappropriately questioned the artistic qualifications of the club's dancers. "It is undisputed," he wrote, "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."

The court also overstepped its role, argued Smith, and in so doing, allowed the tribunal to rewrite state law. "The majority implies that since the Legislature did not exclude from the entertainment tax other lowbrow forms of entertainment, such as baseball games and animal acts (see majority op at 2), it would not have wanted to exclude pole dancing; but the issue is not what the Legislature would have wanted to do, but what it did," reasoned Smith. "If the Legislature wanted to tax all 'choreographic . . . performances' except pole dancing, it could (assuming there are no constitutional problems) have said so, but the Tribunal has no authority to write that exception into the statute. And if, as the majority claims, a Department regulation purports to extend the tax to ice shows with 'intricately choreographed dance moves' (majority op at 4), that is a problem with the regulation. It does not change the statute."

In his summation, Smith found the question at hand a simple one—"whether these women were dancing or not"—and noted that any testimony provided by experts for one side or the other "superfluous." He also, and perhaps inevitably, pulled Hustler into his opinion in a way that the magazine's founder and publisher, Larry Flynt, might find interesting.  

"Like the majority and the Tribunal," wrote Judge Smith, "I find this particular form of dance unedifying—indeed, I am stuffy enough to find it distasteful. Perhaps for similar reasons, I do not read Hustler magazine; I would rather read the New Yorker. I would be appalled, however, if the State were to exact from Hustler a tax that the New Yorker did not have to pay, on the ground that what appears in Hustler is insufficiently 'cultural and artistic.' That sort of discrimination on the basis of content would surely be unconstitutional. It is not clear to me why the discrimination that the majority approves in this case stands on any firmer constitutional footing."

The Appeals Court opinion and dissent can be accessed here.