by Richard W. Millar, Jr.

They say there is nothing more certain than death and taxes, but sex and taxes follow a close second. A company with the eponymous name of 677 New Loudon Corporation did, and perhaps still does, operate “an adult juice bar” called Nite Moves in the town of Colonie, New York. I see that time and events have passed me by again as I was unaware that there was such a thing as an “adult juice bar.” Perhaps that’s why my oldest grandson asks for gift cards to Jamba Juice at Christmas, but I digress.

At Nite Moves, not surprisingly, “patrons may view exotic dances performed by women in various stages of undress.” It has four sources of revenue: 1) general admission charges which allow the customers to enter, mingle with the dancers, view on-stage performances and those “at any table or lap dances performed on the open floor”; 2) “couch sales” which is the charge for a dance performance in one of the club’s private rooms; 3) register sales from sales of nonalcoholic juice; and 4) “house fees” which the dancers pay to the club.

I don’t know how many juice bars they have in Colonie, New York, but this one, at least, did not escape the notice of the tax collectors.  After a “test period audit,” the Division of Taxation concluded that although Nite Moves had paid tax on the register sales, it had “neglected” to pay tax on the admission charges and private dance sales and determined that approximately $125,000 was due.

Night Moves sought a redetermination claiming that the dances “both on-stage and in the private rooms qualified as ‘dramatic or musical arts performances’ and therefore the fees were exempt from taxation.” An Administrative Law Judge bought that argument and held that the fees were not taxable. The tax people appealed and the Tax Appeals Tribunal reversed the administrative law judge, finding that sales tax liability could be so imposed. Nite Moves, in turn, challenged that ruling and the case ended up in the New York Supreme Court, Appellate Division.

It seems that the tax law creating the exception imposed a sales tax on any admission charge in excess of ten cents except charges for “dramatic or musical arts performances.” (I am betting that it would be pretty hard to find any place in New York that charged less than ten cents for admission to anything but, again, I digress.) Thus the issue, as framed by the court, was whether the admission and private dance fees were for a “live dramatic, choreographic or musical performance.”

If you accept the axiom that for every issue there is an expert, you would not be surprised to learn that Nite Moves had, in fact, an expert witness—“a cultural anthropologist who has conducted extensive research in the field of exotic dancers.” I am not sure how one goes about becoming an expert in strip club dancing, or what constitutes “extensive research,” but I am thinking maybe I could at least intern for awhile.

In this case, Nite Moves had a female expert, which was probably a good call as most guys would have zero credibility. She testified “at length regarding the sequential components, aesthetics and principles of exotic dance and . . . set for the choreographic sequence and characteristics of the on-stage dances.” She further concluded that the private dances involved “similar kinds of movements,” as those on stage—a less than startling observation.

The appellate court did not accept the argument that the private “couch dances” were choreographed stating that “in our view, there can be no serious question that—at a bare minimum—petitioner failed to meet its burden of establishing that the private dances . . . were choreographed performances.”  I disagree. If the quantum of evidence is a “bare minimum,” I think that the club met it.

The appellate court also reached the same result as to the taxability of the door admission charges noting that the lower tribunal has essentially disregarded the expert testimony which the appellate court determined was not arbitrary.

I don’t necessarily agree with the appellate court on this one. I suspect that the dances were, in large part, choreographed, certainly were live, and at some point became dramatic, but it all serves to confirm the late president Reagan’s view of governmental functions, “If it moves, tax it.”

Mr. Millar is a member of the firm of Millar, Hodges & Bemis in Newport Beach.  He can be reached at millar@mhblaw.net.