Several nightclub owners in Ballard, Fremont, and Capitol Hill had every reason to believe their businesses were current on taxes. But within the last seven months, state auditors told at least three Seattle club owners that, in fact, they owed thousands of dollars in back taxes—up to $210,000 in one instance—due to a vaguely worded state code originally written to tax aerobics and jazzercise studios.
“This is the first time, in my experience, that they’ve applied this tax to music venues,” says Seattle Office of Film + Music director James Keblas. “I’m worried about all our live music venues—even nonprofits—suddenly being audited and being told to pay or they’ll be shut down.”
The owner of one such bar, who asked to remain anonymous, concurs that unless the state waives the huge, unexpected bill, “I’ll be shut down.” And at this rate, the bar owner continues, the state is “going to shut down more businesses.”
But the state Department of Revenue (DOR) insists the tax, which is being applied to venues where people can dance, is nothing new. “It is not a new interpretation of the code, we’ve always been doing this,” says Mike Gowrylow, a spokesman for the DOR.
Now, club owners around the city are petitioning the state to clarify the code and forgive their past debts—which the state is attempting to collect retroactively for several years—before it bankrupts them. We can’t name the bars involved, but you’ve probably heard of them. None of the nightclub proprietors contacted by The Stranger would speak on the record for fear of reprisal from the DOR, which confirms that it intends to collect the money from bars and clubs.
“We assume everyone is paying the tax if it applies to their business,” says Bob Palen, a tax specialist at the DOR.
At the heart of the controversy is a vaguely worded, decades-old law (WAC 458-20-183) that leverages a 9.5 percent sales tax on amusement, recreation, and physical fitness activities like golf, billiards, swimming, and “charges made for providing the opportunity to dance.” At first blush, that last part seems like a reference to concert ticket sales. But it was actually added in 1993 to address the state’s (then) booming jazzercise and aerobics industry, according to Palen. In fact, the code refers to “exercise classes” and “physical fitness services,” but never lists music clubs or dancing as taxable services.
Gowrylow says that auditors are cracking down on the code after the DOR discovered last year that gyms and other private sporting clubs weren’t charging a sales tax on membership fees. “We identified it as a problem and sent a special notice to all the groups affected by the law that they were supposed to charge sales tax.”
But club owners say they didn’t receive the notice. “It would’ve been buzzed about in the industry, we would’ve been aware of it,” says the club owner.
Informally called the dance tax, it’s more appropriately called the “opportunity to dance” tax—and it covers more than just dance. 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 Palen. 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.”
Meaning every venue that has a dance floor—even if it’s not being used—or offers karaoke or an open-mic night is subject to the sales tax. On average, businesses are audited every four years. But now if venues are found failing to collect the 9.5 percent tax, Palen says auditors could apply taxes going back “anywhere from four years to infinity.”
It’s no secret the state is scraping for money. The legislature has been tasked with filling multibillion-dollar deficits for the past several years (the state faced a $5 billion-plus shortfall for the 2011–2013 biennium). But while the state cuts several programs each year, the legislature also gives away hundreds of millions of dollars in tax breaks to software makers, airplane builders, Wall Street banks, and other large industries. The DOR isn’t tasked with filling the deficit, auditors certainly don’t have quotas to meet, but the state is clearly clawing for new revenue wherever it can get it—even if it’s from the back pockets of small business owners.
Club owners say the state auditors have been single-minded and, in some cases, aggressive. “My auditor… came in with an obituary of a girl who committed suicide,” says another club owner. “When I argued that we aren’t primarily a dance club—we have ‘No Dancing’ signs up everywhere—she flashed this obit that said the girl liked to dance at [our club]. The auditor said, ‘I know this is ridiculous, but I have to do this.'”
The impacts may trickle down to bands and patrons, the owners warn. Another club owner explains, “A sales tax cuts into their portion at the door,” which means either bands will be paid less for playing or concertgoers will be charged more.
Right now, several bars are under the microscope while others are lying low (but still not talking about it on the record). “Businesses that haven’t been audited can continue to gamble with not paying the tax until the law is clarified,” the bar owner continues. “But every music venue that’s been audited is held to another set of standards—and it’s going to put us out of business.” 
You gotta fight for your right to parrrtttaaaayy!!!
Why would the state want to put a tax on tax aerobics and jazzercise studios??? Wouldn’t they want to give them tax incentives instead?
I predict a run on wall-to-wall carpet.
This is a tax on sweating?
(Seriously, nobody dances at stand-up comedy shows.)
Seriously, this will be enforced equally at every tavern, roadhouse, bar, restaurant, supper club, etc. with more than four square feet of linoleum or parquet, no matter how rural or remote, north to south, east to west, right?
Not just in cities where such establishments are thick on the ground and the auditors can lug their briefcases from one to the next without breaking a sweat, right? RIGHT?!
And all because this state is allergic to progressive taxation.
Sow: reap.
Gotta love liberals. They create a myriad of useless taxes on small business then scream blue murder when they have to pay.
Well, fuck you.
Go here:
http://apps.leg.wa.gov/DistrictFinder/De…
…and find your Washington State Legislator.
Then visit, call, write, email and fax.
Seriously…this will destroy the things we enjoy about our night life…music and dancing.
Print Cienna’s article and fax or email it.
Putting MORE businesses out of businesses and putting MORE people out of work is not helpful.
Well…I wonder if any of the neighbors around The Cuff or Neighbors work for the state auditors office and decided to get revenge?
uh, instead of not commenting on the record, why aren’t the bar owners bitching up a storm, banding together and calling a lawyer to represent them? Trying to enforce ILLEGAL tax laws which were NOT designed for dance floors needs to be fought. Now is not the time to be shy.
Also: since when do most bands, (or performers) get paid much of anything at the majority of venues in this town? Low cover charges, long guest lists, cheap crowds and bar owners that don’t pay anything or offer a piece of the bar, means very few artists in this town make much money from the door…
I never thought people danced in this city — i always thought a those people “dancing” were all having epileptic seizures and/or orgasms while standing at a show or the dance floor at the Cuff respectively.
Sometimes bitching up a storm doesn’t help. I have a feeling this is going to make me very sad very soon. Should I go an prove that every restaurant, bar and nightclub makes me sweat? Seriously…an “opportunity to dance” tax. I know this sounds like a joke but I have a pretty strong feeling it is not.
If the state insists on collecting this obscure tax which very few club owners even knew about before getting audited, it will put many of those clubs out of business and then the state will get no sales tax revenue going forward. Though most people, especially musicians and customers, think club owners are all living the Life of Riley, in reality most club owners are earning an average gross annual income of around $35,000. In most cases, the bartenders are out-earning their owners. A club owner enjoys working for him/herself, but every one of them I know works about 80-100 hours a week and earns noticeably less money than the average American.
The city gets 5% admissions tax on all box office receipts or cover charges. The state gets 9.5% for essentially the same thing. For the clubs, it’s like being shaken down by two different neighborhood bullies. One guy takes your lunch money, then the other dunks your head in the toilet and insults your mother.
“Bitching up a storm” just puts your venue next on the list.
Hmmm… I wonder if the major players (The Gorge, White River, WaMu, Emerald Queen, etc) are paying this tax? Has the state come to shake them down on this one yet?
And if not…
…well, that’s what we’ve got crack reporters like Cienna around to find out, I guess!
Hey, ‘Strangeways’… speaking as a local musician for 15+ years… I’ve found ZERO inequity in how Seattle musicians are paid vs. how musicians are paid anywhere else. In most situations, bands share 80% or so of the gate after the sound/lights/door guy get paid. Sometimes the bands get 100% of the gate. I’ve seen local club owners give touring bands MORE than they actually earned on a slow night just because they’re on the road. Keep in mind, club owners, with rare exception, are people who love music and wanted to create a cool place for people to come hear it. The booze sales just pay the bills.
Artists are paid a pre-agreed percentage of the cover charge. If they bring in lots of people, and those people drink lots of drinks, the artists will be well compensated, the bar will make money and the artist will be asked back to do it all again. If one of those first two things DOESN’T happen- the other won’t either. If you or your friends aren’t making enough money playing clubs, then do the rest of the competition a favor and quit… or work harder to get a bigger fanbase- doesn’t matter how shitty you are, you’ll get gigs and make lots of dough if you’ve got fans.
Every club in this town takes chances on new bands, every club has certain acts they depend on to bring in big crowds, and it ain’t easy to pay the bills. Just like being in a band- there’s no guarantees. Ask any club what its like to book the weekends during the summer when the bands/fans are busy playing/attending one of the umpteen music festivals that populate the calendar. Ask ’em what its like to deal with a sunny day… or a snow day. It blows! The liquor is their lifeblood- that’s how they pay the rent/employees/etc. I’d be surprised if your average Seattle club owner brings in a salary of more than $40K. Seriously- there isn’t a great living in that biz. THEY LOVE MUSIC!
Now imagine being that person and getting hit with a $200K tax bill… OUT OF NOWHERE. Cruel and unusual punishment, for sure. Nevermind the ongoing worries about people fighting/falling/starting lawsuits, getting fined for artists drinking on stage & being forced to spend $30K+ to install sprinklers a few years ago in some of the old buildings that house these venues.
Too many old farts and fluffs falling over do to exhaustion I would guess? A sin tax indeed?
but a gym tax is not a night club tax so if this is not a fable then the Seattle Soviet Republican Goon Guard strikes another one for Lies,Injustice and the American way
ha ha – no surprise. Seattle has always been a ‘Footloose’ town. They hate music, they hate kids having fun and they especially HATE dancing. So they set out to put an end to it with the ‘dance tax’.
I guess now I have my answer as to why Seattle has such a small number of dance clubs compared to other cities. This city seems to have 90 bars to every 1 ‘discotheque’. Didn’t know there was a dance tax until today.
Oh well, I’m 31 and already too old to go out dancing anyway. Dancing was so 1990’s.
I’m gonna go home and rock out to Footloose and dance in my underwear in my living room without paying the stupid tax. Take that Seattle 😉
So these clubs are complaining about being treated like every other business? Sales tax gets tacked onto just about everything we buy – why do these club owners think that they’re above the law? Not sure which is more pathetic, trying to get away with it in the first place or crying about once they got caught.
You know, I’ve always found myself in a dancing mood every time I’m at Republican party offices.
@19 club owners already collect and pay sales tax on SALES (alcohol, food, merch, etc). This is about admissions tax…ticket sales…the part that goes DIRECTLY TO THE BANDS and sound/door people. Asking a venue to come up with $200k in back ticket sales that was ALREADY PAID TO THE BANDS on the night of the event is totally fucking insane.
@19 & 21. Club owners already pay a 5% admission tax to the city on all ticket sales, in addition to the sales tax on alcohol, food, and merch. This is the state demanding retroactive payment of a tax that has never been applied to club venues before.
fuckin hell…
@22 That’s what I was trying to say, yes.
I guess the state saw the city of Seattle charging the 5% admissions tax and was like “hey, good idea! how can we interpret laws about Jazzercize to squeeze more money out of music venues?”
In a city short on quality small places to go dance (or people who will dance for that matter) this is so sad. I’m crying giant tears. Aren’t there easier ways to get a few million dollars? Anyone?
@21 & 22. It obvious that neither of you have ever run a business. There’s a myriad of taxes that businesses have to deal with everyday – sales tax, B&O taxes, work comp, employment taxes, property taxes, just to name a few. Just because you’ve paid one tax doesn’t mean you get to “skip” a different one.
Of course, some businesses even have additional specialty taxes leveled on them. For instance the lodging tax, gas tax, cigarette tax and even the commercial parking tax. Is it fair that clubs get dinged 5% on ticket sales by the City? If you believe so, take it up with the City – don’t use it as an excuse to ignore your obligations to the state and county.
As to your excuse that the tax is not fair because ticket proceeds GO DIRECTLY TO THE BANDS. BFD… The price of my poutine at Skillet goes directly to the chefs and the busboys and the wait staff and the vendors and etc. Yet even an operation like Skillet understands their obligations and tacks on the sales tax that goes to the state and county. Why is that clubs seem to think that they’re so special?
Finally, any business owner (club or otherwise) that doesn’t have the baseline intelligence to figure out their tax obligations (to the City, County, State, Feds) should never be in business in the first place.
Given our current economic condition why should we have an ounce of sympathy for folks caught not paying their fair share or otherwise trying to cheat the system?
“Given our current economic condition why should we have an ounce of sympathy for folks caught not paying their fair share or otherwise trying to cheat the system?”
Who is doing this? Not these business owners. Read it again and don’t just assume this is about trying to avoid paying taxes.
I just got the following response from Senator Jeanne Kohl-Welles:
“Thanks for forwarding to me as I hadn’t known about it. I’ll look into it and get back to you.”
@26 Read the headline again. “Recently Implemented Tax”
No one is trying to get out of paying their 5% admissions tax to the city. It sucks for the bands to get 5% less of the door, but at least venues knew about it and could withhold it properly.
The whole point of this article is the state is recently interpreting a law about fucking jazzercize to suddenly mean some venues have a massive unpaid bill–an additional full retail sales tax on admissions on top of the at least well-documented city tax–that they could never have found by doing the research on what taxes they need to pay.
Venues are often restaurants, too, so implying they don’t know how to pay all their other taxes (payroll, B&O) is seriously insulting. Everyone in the club business is doing their absolute best to figure out what the hell is going on so they can properly pay their taxes and not be blindsided by this new interpretation…it’s not a cut and dried tax evasion issue.
I notice you don’t seem to mind when the Stranger writes an article defending your small business to operate outside a restaurant…why are you so special that only YOU get awareness raised on things that affect your small business?
Since the definition includes places that you can generate a sweat, will they also go after the sex clubs and bathhouses in Seattle? People work up a sweat there 🙂
Besides that this whole thing is absolutely sickening and indicative to our whole shit-fucked state (so glad the rich can still tango in their forest fantasy Medina residences); what we might be able to look forward to as a result are more warehouse parties. Go team!
What is it about Seattle and dancing anyway?
Write to your senator and representatives. We just might lose the nightlife we enjoy and the employers of so many. http://apps.leg.wa.gov/DistrictFinder/de…
Seriously Skillet? You’re losing money on French Fries and you think you can give business advice? You’re an even bigger d-bag than everyone in the industry thinks you are. lol!
We need to fight for this one. These are the very clubs that give our city unique character, jazz, blues, rock, soul, reggae, and they help to spur on our music scene. Club owners are not getting rich off of the backs of dancers. In fact owning a club is more of a labor of love and a gift to the city, than a money making endeavor. Let’s get real. We voted down the income tax and have done so many a times. Money is needed to run our city and state and nation. Most of us are not rich enough to not vote for taxes. We cannot pay for all of our needs as individuals. Forget about the welfare mothers that you (wrongly) think you are funding, think about yourself. I was just in Germany where income tax is around 40%. Property tax 9%. Let’s straighten out our tax code and not shut down business that make our city shine.
Seattle U law student here…
I did some case law research into the statute and the web history of the guide for taverns/bars. Here’s what I found: the page on the DOR’s website changed to include the information on cover charges (the Department’s interpretation of a very vaguely-worded statute) sometime between September 24th and October 21st of 2009. The pre-October 2009 page for taverns did not contain anything about collecting Sales tax on cover charges.
Further – the new wording doesn’t properly quote either the regulation [
WAC 458-20-183] nor the statute [ RCW 82.04.050 ] about “contests” or “karaoke”. Unlike the “opportunity to dance” (from the WAC), both terms are missing from both and are merely the department’s view of the law.
I have a suspicion that this example of “karaoke contest” is not an accident. 10 years earlier in 1999, the DOR won a case against a karaoke bar owner for mis-classification of revenues at the Board of Tax Appeals [ 1999 WL 1458594 ]. The case dealt with an unrelated exemption for the lease of personal property (the guy lost) but relied on the same statute and regulation.
Bottom line:
1. Bar and tavern owners couldn’t have seen DOR’s view on this law until after the financial crisis hit (October 2009)
2. There is yet to be a case challenging the DOR’s view that a cover charge at a bar or a club is indeed an “Amusement and recreation services” or is “made for providing the opportunity to dance”
If an attorney representing any anonymous bar owners need help with this, you know where to find me!
Seattle U law student here…
I did some case law research into the statute and the web history of the guide for taverns/bars. Here’s what I found: the page on the DOR’s website changed to include the information on cover charges (the Department’s interpretation of a very vaguely-worded statute) sometime between September 24th and October 21st of 2009. The pre-October 2009 page for taverns did not contain anything about collecting Sales tax on cover charges.
Further – the new wording doesn’t properly quote either the regulation [
WAC 458-20-183] nor the statute [ RCW 82.04.050 ] about “contests” or “karaoke”. Unlike the “opportunity to dance” (from the WAC), both terms are missing from both and are merely the department’s view of the law.
I have a suspicion that this example of “karaoke contest” is not an accident. 10 years earlier in 1999, the DOR won a case against a karaoke bar owner for mis-classification of revenues at the Board of Tax Appeals [ 1999 WL 1458594 ]. The case dealt with an unrelated exemption for the lease of personal property (the guy lost) but relied on the same statute and regulation.
Bottom line:
1. Bar and tavern owners couldn’t have seen DOR’s view on this law until after the financial crisis hit (October 2009)
2. There is yet to be a case challenging the DOR’s view that a cover charge at a bar or a club is indeed an “Amusement and recreation services” or is “made for providing the opportunity to dance”
If an attorney representing any anonymous bar owners need help with this, you know where to find me!
The Stranger and it’s staff seem to have a never-ending appetite for new taxes.
Except of course when that new tax affects something that they enjoy.
Ignorance of the (existing) law is no defense. I say give the clubs a year without penalties and interest to pay their back taxes. If they can’t pay by then, close ’em down.
If you cant read or write or don’t have a translator?
As per the “If you cant figure out Seattle Tax’s you should not open a business”
well? you just have not been paying attention as to how fast Tax laws come and go and how many are not relevant but still are in a pile of crap your city county state and nation have avoided since 1776?
the shoe tax?
If Ignorance of “existing laws” is no defense you need to check how many laws there are and try to figure what will be applicable to your club for that year? Its part of the great “making Seattle Great foundation” that your great state and city try’s as hard as they can to complicate every aspect of you life to the point you need a lawyer to represent your lawyer.
hey peter….
well done, im connected to a club involved
send me an email at danrc44@gmail.com
This is crap. There’s already a lack of places to dance in Seattle (that aren’t dirty or in Pioneer Square).
Has anyone in the DOR seen London lately? I think if they put all the places to have fun and blow off steam out of business maybe more people will take to the streets to “dance”, eh? I would.
I would dance on your car, would YOU have to pay taxes for that? Keep crapping on what the people want and see how that works for you.
Can’t tax the rich, that’d be socialism. Can’t tax pot dealers, that’d legitimize drug use. Nope, gotta pile taxes on the kids who dance and the small businesses that give’em the floor.
This sounds so fucked.
@7 and @39:
I agree 100%. This publication and its readers have no problem endorsing and voting for the same people who draft, ratify and impose these tax laws, but then they go bat-shit crazy when it’s actually applied to something they enjoy. As much as I hate its impact on small business owners and nightlife, I’m glad it’s happening. Perhaps then people will wake up to the hegemony of this liberal tax-and-spend-and-waste fiefdom we live in….
@DAZ – I like your conflation of things, it’s wonderfully ignorant. The argument here isn’t that there is a tax, but that the clubs were not informed they were to pay the tax. I know it might be splitting hairs in your _liberals-only-believe-one-thing_ mind, but there IS a large difference when you read.
I will donate my dj services to a “dance in” at the Department of Revenue offices.
This shall be here forth known as the “Footloose Tax”.
Ok all. The gripe with this seems to be getting missed. The tax is now being leveled in a way that the spirit of it never intended. using it to tax bars and clubs and what else may be technically within the law but this was never what it was intended for.
Along the lines of Puty’s comments… Since many ways of collecting additional revenue have been stopped by the people or their elected officials, one can’t be too surprised when government comes after the less represented among us. Of course, this isn’t right. I wonder how much simpler things would be if we all paid the same amount of sales tax on candy and soda as we do on our other purchases.
This is a clear example of the difference between a focus on Cutting Spending vs. Seeking to Tax every single source of income possible to make up budget shortfalls to maintain the status quo.
Current or attempted: Plastic bag tax, gasoline tax, coffee tax, soda tax, B&O tax, admissions tax, employee tax, square footage tax, stadium tax, parking garage tax, increased parking meters everywhere (tax), Good2Go highway tax etc.
Next up: breathing too much air tax, giving birth tax, spousal tax, walking tax, snow removal tax, collected rainwater tax, lawn watering tax, pea patch tax, sitting under a tree tax.
When will Washington residents elect those legislators who prefer cutting spending to adding yet another ridiculous tax!
This is a clear example of the difference between a focus on Cutting Spending vs. Increasing Taxation on every single source of income possible to make up budget shortfalls to maintain the status quo of spend, spend, spend.
Current & attempted WA/city taxes: regressive property taxes, B&O tax, admissions tax, employee tax, square footage tax, stadium tax, parking garage tax, increased sales tax, increased parking meters everywhere (tax), 30% increase in liquor tax, Good2Go highway tax, highest gasoline tax in the country (despite a high % of Alaskan oil being pumped through our port!)
Attempted taxes: state income tax, plastic bag tax, coffee tax, soda tax.
Next up: breathing too much air tax, giving birth tax, spousal tax, walking tax, snow removal tax, collected rainwater tax, lawn watering tax, pea patch tax, sitting under a tree tax & charitable giving tax.
When will Washington residents realize electing legislators who prefer to cut unnecessary spending is a better alternative to electing those hell bent on maintaining the status quo by tacking on one more ridiculous tax after another like this?!
FYI: Gregoire took office with a $1.9 billion budget surplus in 2007 and has since spent our state into a $4.6 billion budget deficit in just the past four years!
So if I’m parked at the curb with my window open, and my radio playing; does that mean I’ll be taxed for “providing the opportunity” to dance to anyone who walks by?
So If I’m playing music at a back-yard barb-e-que, do I get taxed for “providing the opportunity” to my guests?
So if I take my guitar to the park, and someone happens to dance to the tune I’m playing; does that make me a criminal?
Does Pikes Place Market pay “dance tax” for “providing the opportunity” to dance??
Just askin’
It will be the department of revenue cover charge at the door of clubs “And” church and kids camps and any school activity that has music and a little space to boogie or a activity center thats for physical entertainment.
@54 You do realize that they are cutting spending as well, right? Just, they are cutting programs that could help instead of cutting the waste programs. One of the largest waste programs in Seattle is the recycling bill, but shhhh …. we can’t mention that it costs us millions to recycle crap that winds up in the dumps anyway, that wouldn’t be “responsible” of us.
I remember a decade or so ago when there was an education program for the poor, yep, they paid to put us who could not afford it through school so we could get better jobs and bring in more money …. that was cut a while ago. Now they’re cutting Medicaid, a LOT. Do you know how much you are paying for dental of those unable to get health insurance now? They are waiting for it to be an emergency, which can cost up to ten times what it would cost if a dentist just did regular cleanings and extractions. They are cutting emergency care to a minimum to, which will actually cost tax payers more because unpaid medical bills are still paid by the state, only with the added fees for collection agencies.
This is one tax I approve on, well, anything that targets bars and clubs. It’s an excess luxury that really causes a lot of problems in Seattle anyway. Downtown is plagued by the unruly drunks who party in the bars then drive home, drunk.