Last Thursday afternoon in Olympia, Dan Cowan told the state Senate's Ways and Means committee that he knows every major promoter in the state and many club owners, and in the 20 years he's owned the Tractor Tavern, neither he nor any of his colleagues knew that they were supposed to collect sales tax on cover charges and tickets if their clubs provided customers an "opportunity to dance." He learned about the tax, he said, when the Department of Revenue retroactively charged him $250,000 for unpaid sales taxes. He's not alone.
The DOR is quick to point out that the tax—which also affects aerobics and jazzercize classes—has been part of state law for decades. But representatives of other local venues, such as the Century Ballroom and Neighbours, also have said they didn't know they were supposed to collect sales tax for tickets and cover charges to events that provide their patrons an "opportunity to dance"—and they too are now facing back taxes in the six-figure range.
Cowan told the committee that he settled for $91,000, but for his nine-employee Ballard club, which sells tall boys of Pabst and Hilliard's while regulars listen to rock, rap, and roots bands, "it's a huge impact upon us. I think if we don't do something about this now, it's going to come back. [The law is] extremely vague."
Just how vague? Sen. Ed Murray, sponsor of SB 5613—which would amend the current law so that venues providing an opportunity to dance would not have to collect the full retail sales tax—and the DOR articulate the state law completely differently.
Explaining how the "opportunity to dance" tax works in the afternoon before the hearing, DOR spokesperson Mike Gowrylow forwarded Seattle Weekly a section of an updated Tax Guide for Nightclubs, Bars, and Lounges that "we hope to publish soon." It stipulates that "Any charge that allows a customer an opportunity to dance is subject to sales tax. The DOR presumes that an opportunity to dance is provided when a venue has a dance floor, or any dance area or location where dancing customarily occurs, and provides music, whether the music is provided live, by a DJ, or by some other arrangement." Note that last sentence: ". . . whether the music is provided live, by a DJ, or by some other arrangement."
When Sen. Murray took the mike to introduce the bill he's sponsoring, his interpretation of the law was in complete contradiction to the DOR's: "The tax doesn't make sense for these reasons: It applies to bars and clubs with DJs and recorded music but not to concerts with live bands, even though those different events might happen in the same venue and the people would both have the opportunity to dance." Really?
Seattle club owners are just as confused. The owner of one of the city's most popular clubs told me last Thursday that he understands the tax to be "only for dance clubs, and [we are] a live music venue." Another longtime club owner told me that he believed concerts were exempt from the sales tax.
Reached for follow-up earlier this week, Murray said in a statement that "One of the main difficulties of the current law is the varied interpretation of a 'concert' venue versus a venue that is used for both concerts and the opportunity to dance." One such venue is the Gorge.
In the past, Gowrylow has used the amphitheater as an example of a venue that doesn't promote dancing, and that therefore was exempt from charging sales tax on ticket sales. Last week Gowrylow said no music venue is patently exempt from the tax, and he seemed surprised to learn that the Gorge was gearing up for its second annual Paradiso, a festival riding the electronic-dance-music wave, and that dancing had become a large part of the 11-year-old Sasquatch! Festival.
Gowrylow says sales tax should be assessed if dancing—not just sitting or standing while watching a performance—is part of the draw to buy a ticket, regardless of the venue. "If you go to the Paramount and you watch a concert down there, you can't stop people from jumping up [and dancing near their seats]," he says, explaining that such an event would not require collection of sales tax. "But if you got to the Gorge and the Gorge is actually promoting a dance festival, then they should collect a tax." (Sales tax was not added to the price of tickets for Sasquatch!, which has sold out. And it's not clear if the tax was included as part of the sticker price. Gowrylow's earlier comments about the Gorge's exemption suggests that they do not collect the tax. A representative for Live Nation, which owns the venue, would say only that "We are currently in good standing with all taxing authorities on all events that we produce.")
Gowrylow says it doesn't matter if an event or club promotes itself as a "dance" club or "dance" festival. If dancing is an implicit part of the festival experience—as it clearly is at Paradiso, and increasingly is at Sasquatch!, which features a large tent where DJs spin for rabid throngs of dancers—the DOR believes it should be collecting a sales tax. "It all depends on what people go and expect to do when they get there. If people are coming there to dance, then they should be collecting the tax."
SB 5613 has until Friday to get out of committee and head to the floor for a vote. If it doesn't pass, a continued state of confusion over the current law's various interpretations, and the possibility of unexpected tax bills, remains certain.