"Dance Tax" Could Force Seattle Bars to Close
The Washington State Department of Revenue has come to collect!
Citing a 1993 law that imposed a 9.5-percent sales tax on amusement, recreation and physical fitness activities that include businesses that provide their clientele with the "opportunity to dance," the DOR has audited 13 (out of 44) Seattle-area bars, taverns and clubs for the tax. And in some cases, the agency is attempting to retroactively collect taxes for several years that could threaten to bankrupt some venues that could owe the state upwards of $200,000.
Club owners say the nightlife industry is being targeted because it is one of the few types of businesses weathering the recession.
"The DOR has been looking for places to audit to get more revenue, and this industry is one that’s being targeted by the DOR because it’s going well," said one club owner who spoke to EDGE on condition of anonymity. "The general public should be concerned about this because a lot of venues that people really love going to are right now threatened with being closed, and could be closed within a couple months."
The tax, known as the "opportunity to dance tax," is not something for which your average bar or club owner would look. The confusion surrounding the enforcement of the tax sprang up because the code refers to "physical fitness services," but does not list music or dancing clubs as a taxable service. Club owners are simply saying they did not know about the 9.5 percent tax that was specifically applied to cover charges recouped at the door.
The DOR claims that after they discovered last year that gyms and other private sporting clubs weren’t charging a sales tax on membership fees, they sent a special notice to all of the groups affected by the law-including nightlife venues.
Local club owners, however, are crying foul as they say they never received the notice. In fact they all say as far as they are concerned their businesses are current on taxes.
Sadly, unless the state waives the retroactive tax bill, some business owners will be forced to close their doors.
"Every club in Seattle that I’ve spoken with, and there’s a huge conversation going around about this in the club scene, no one’s ever heard of this tax, no one’s paid it," said one club owner in an appearance on 97.3 KIRO FM’s Ross and Burbank Show. The club owner, along with several others, would only speak on the condition of anonymity because they say they fear retribution from the DOR for speaking out.
"I would like to see an audit, maybe the DOR can provide some from clubs in Seattle that have been paying it," said the owner. "Because they claim it’s just a few big ones that got caught cheating, is what the implication is, and I think most club owners would be pretty surprised that the head of DOR accused them of basically cheating on their taxes when that’s not the case at all."
DOR spokesperson Mike Gowrylow said state auditors have checked other Seattle venues and found that eight of the 13 venues the agency audited were paying the tax. DOR found that five clubs were in noncompliance.
"It’s not been an issue anywhere else in the state," said Gowrylow. "Most businesses are paying it, but there are a couple big ones that apparently got caught essentially and think it’s unfair and didn’t know."
Pete Hanning, president of the Seattle Nightlife and Music Association, said the state had not been collecting the tax in the past. "They’re doing a gotcha on us and that’s not a way to govern," he said.
Many of the bar operators say they are not opposed to paying taxes, and are not necessarily even against this tax being applied in the future. They say, however, that to ask clubs to pay upwards of $150,000 or more will result in the loss of many of Seattle’s nightspots-possibly some LGBT venues on Capitol Hill.
In an attempt to fight back, a group of club and bar owners met with the DOR on Aug. 30 to talk about the tax. According to some who were present, the meeting accomplished nothing and the agency continues to seek collection of the back taxes.
Out of this battle over dancing and taxation, Neighbours Seattle has stepped forward to fight. The popular nightclub’s lawyer said they are threatening to sue. Mark Kimball of MDK Law Associates says Neighbours is prepared to fight what he described as DOR’s money grab by filing a lawsuit in either King or Thurston County within the next six months.
Neighbours’ lawyers say that taxing the "opportunity to dance" in nightclubs, some live venues and bars is wrong while taking the position that a live band is somehow different from a DJ. In fact, they’ve gone as calling it "unconstitutional."
The DOR says that they do not apply the tax to live venues such as Key Arena, the Gorge and the Moore because the primary purpose to purchase a ticket is to watch a concert-and not dance. Club owners and Neighbours’ lawyers argue that people do indeed dance at concerts.
Kimball also pointed out that the state had audited the business at least twice since it opened in 1983 and never mentioned the tax. It wasn’t until last year, when the state audited Neighbours for a third time, that the state said Neighbours had to pay the tax.
Kimball said that it is their position that it is not fair to go back and say that the DOR is now going to treat Neighbours differently than it has for the past 20 years. Kimball said the state Legislature can make that distinction, but lawmakers have yet to do so.