Dance Floor Standoff

Gay Bar Threatens Lawsuit Against Convoluted State Tax on Dancing

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The owners of Neighbours, a gay dance club on Capitol Hill, are facing the same problem as countless other bars in the Seattle area: an unexpected tax on dancing—a tax that can be applied retroactively for four years, minimum—that other bar owners are afraid to openly talk about. But instead of staying silent, this week Neighbours is trying another tactic. They're preparing to sue the state.

"We hope to bar the Department of Revenue from taxing clubs such as Neighbours in the way they're doing now," says Mark Kimball of MDK Law Associates, who's representing the club. He anticipates filing a lawsuit in King County or Thurston County within the next six months.

The trouble for Neighbours began late last year when state auditors from the Department of Revenue (DOR) told the nightclub's owners that they had to pay the so-called dancing tax for the first time—in total "a six-­figure-plus amount," according to Kimball—even though the club had been audited at least twice before (since opening in 1983) and the state had never mentioned the tax. Kimball says that paying the tax "won't put the club out of business—unlike many others." But regardless, he argues that the sudden, uneven application of the tax is illegal.

"It isn't fair to go back and say, 'Retroactively we're going to treat you differently than we have for the last 20 or 30 years,' when the statute hasn't changed," Kimball says. He contends the DOR simply doesn't have that authority, adding, "The legislature can make that distinction, but they haven't done so."

At the heart of the controversy is a vaguely worded, 50-year-old law (WAC 458-20-183) that leverages a 9.5 percent sales tax on amusement, recreation, and "charges made for providing the opportunity to dance."

The DOR says it has collected the tax since the 1970s. Furthermore, the onus is on venues to know about (and pay) sales tax on cover charges and ticket sales for "events that promote dancing," says DOR spokesman Mike Gowrylow.

But, paradoxically, not every event that features dancing must pay. If this next part seems confusing, well, it is. "If you go to the Gorge," Gowrylow explains, "you're paying $50 to watch a concert. You don't go to dance, so the sales tax wouldn't apply, even though there's an open area where people dance." Tickets and cover charges to live music are classified as "entertainment" and are exempt from the tax.

Therefore, the DOR argues, the sales tax applies to dance venues like Neighbours but not established concert venues like the Showbox Sodo, KeyArena, or the Gorge Amphitheatre. People paying to see DJs are paying to dance, Gowrylow explains, so venues with DJs are expected to pay the dance tax.

"It seems pretty simple to us," Gowrylow says.

"If they're taking the position that a live band is different from a DJ, which they appear to be doing, they can't," counters Kimball. This, too, is grounds for Neighbours' lawsuit: "They're not allowed to favor one live performance over another. It's unconstitutional."

Kimball says he's found at least 25 other music venues in the Seattle area hit by the DOR's "bald-faced money grab" in the last few years, but he won't release their names. Three other Seattle club owners who've been audited for the tax—for up to $210,000, in one case—have spoken to The Stranger on the condition of anonymity for themselves and their venues.

While bar owners say the state hasn't been collecting this tax until very recently, Gowrylow says that's not the case. Of the 13 bars within city limits audited in 2010–2011 that should be paying, he says, eight of them were already paying of their own volition. But he didn't have records for past years.

Pete Hanning, president of the Seattle Nightlife and Music Association (SNMA), says club owners are reticent to speak because "there are concerns about the DOR being vindictive to those working on this issue." The SNMA and the Washington Restaurant Association, along with individual bar owners affected by the tax, are meeting with the DOR to try and clarify the law and (in individual cases) see if the past debts can be excused. If not, owners may be held personally liable for massive debts. recommended


Comments (7) RSS

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inquiastador 1
The explanation of how the Footloose tax is applied is so convoluted it is almost mind-bending.
Posted by inquiastador on August 24, 2011 at 7:16 PM · Report this
Josh Bis 2
At last, an upside to the common complaint about how no one dances at shows in Seattle?
Posted by Josh Bis on August 25, 2011 at 1:29 PM · Report this
tallchris 3
How does this work out for a venue that has live band and DJs? Would they then pay the tax on events with DJs but not live bands? What if there's a DJ in between bands?
Posted by tallchris on August 25, 2011 at 1:36 PM · Report this
"If you go to the Gorge," Gowrylow explains, "you're paying $50 to watch a concert. You don't go to dance, so the sales tax wouldn't apply, even though there's an open area where people dance." ... "It seems pretty simple to us," Gowrylow says.

What in the hell are you talking about, Gowrylow?

Also, didn't we read in the last article on this (… ) about the club with "No Dancing" signs that was still being hit with the tax?

Palen from the DOR was quoted in that one as saying: if there's a dance floor where you could dance—you don't have to dance but the opportunity is there... there's a tax.
Posted by aiff on August 25, 2011 at 11:21 PM · Report this
slade 5
Like a mosh pit is not dancing? Its really just more of Washington States lazy and I mean lazy stupid ass ignorance to be unable to regulate and administer tax's even half ass correctly?

They could have just made it a blanket entertainment tax as one for all and all for one leaves everyone in the loop but no! they have to to just go the lazy stupid way about it.
Posted by slade on August 28, 2011 at 3:09 PM · Report this
KittenKoder 6
First, they have to get money from somewhere, and the state wasted a LOT of it on stupid "green" and other such projects. You want recycling, the you have to pay for it, and no, such projects do not pay for themselves. The irony is that the people being effected by the tax increases the most are not those of us who wanted the stupid projects anyway, I voted against the green crap and that stupid monorail plan (lest you forget one of the biggest embarrassments in our state's history). I say tax more of these people, drunks cost our state more money than those of us on medicaid, and we're paying for it already, so I say add another tax, any business serving alcohol should be taxed to closure anyway.
Posted by KittenKoder on September 1, 2011 at 5:08 PM · Report this
Another perfect example of Seattle's gouge-anyone-who-likes-to-have-fun taxes. As if it wasn't expensive enough for the little people to go to a show, this is Seattle's mentality on creating a police state, one tax at a time. Tell Seattle not to spend 8 million dollars on 8 toilets like it did 8 years ago. Who paid for that?
Posted by MichaelBmert on November 11, 2011 at 7:46 AM · Report this

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