| Matter of 677 New Loudon Corp. v State of N.Y. Tax AppealsTrib. |
| 2011 NY Slip Op 04787 [85 AD3d 1341] |
| June 9, 2011 |
| Appellate Division, Third Department |
| In the Matter of 677 New Loudon Corporation, Doing Business asNite Moves, Petitioner, v State of New York Tax Appeals Tribunal et al.,Respondents. |
—[*1] Eric T. Schneiderman, Attorney General, Albany (Robert M. Goldfarb of counsel), forCommissioner of Taxation and Finance, respondent.
Egan Jr., J. Proceeding pursuant to CPLR article 78 (initiated in this Court pursuant to TaxLaw § 2016) to review a determination of respondent Tax Appeals Tribunal whichsustained a sales and use tax assessment imposed under Tax Law articles 28 and 29.
Petitioner operates Nite Moves, an adult juice bar located in the Town of Colonie, AlbanyCounty, where patrons may view exotic dances performed by women in various stages ofundress. The club generates revenue from four primary sources: general admission charges,which entitle patrons to enter the club, mingle with the dancers and view on-stage performances,as well as any table or lap dances performed on the open floor; "couch sales," representing the feecharged when a dancer performs for a customer in one of the club's private rooms; register salesfrom the nonalcoholic beverages sold to patrons; and house fees paid by the dancers to the club.Following a test period audit conducted in 2005, the Division of Taxation concluded that thedoor admission charges and private dance sales were subject to sales tax, which petitioner had[*2]neglected to pay,[FN1]and issued a notice of determination assessing, insofar as is relevant to this proceeding,$124,921.94 in sales tax due plus interest.
Petitioner thereafter sought a redetermination, contending that the dances performed at theclub—both on stage and in the private rooms—qualified as "dramatic or musical artsperformances" and, therefore, the corresponding fees charged for those services were exemptfrom taxation under Tax Law § 1105 (f) (1). At the conclusion of the hearing thatfollowed, the Administrative Law Judge (hereinafter ALJ) agreed, finding that the subject feeswere not taxable under that provision. The ALJ also rejected the Division's assertion that liabilityalternatively could be imposed under Tax Law § 1105 (d) (i) and (f) (3). The Division filedan exception and, following oral argument, respondent Tax Appeals Tribunal reversed the ALJ'sdecision, concluding that sales tax liability could be imposed under each of the citedsubdivisions. Petitioner then commenced this CPLR article 78 proceeding to challenge theTribunal's determination.
It is well settled that "[s]tatutes creating tax exemptions must be construed against thetaxpayer" (Matter of Federal Deposit Ins. Corp. v Commissioner of Taxation & Fin., 83NY2d 44, 49 [1993] [internal quotation marks and citation omitted]; see Matter of Charter Dev. Co., L.L.C. vCity of Buffalo, 6 NY3d 578, 582 [2006]; Matter of 21 Club, Inc. v Tax Appeals Trib. of State of N.Y., 69 AD3d996, 997 [2010]; Matter of XON.Y., Inc. v Commissioner of Taxation & Fin., 51 AD3d 1154, 1154-1155 [2008]), andthe taxpayer, in turn, bears the burden of establishing that the requested exemption applies(see id.; see also Matter of LakeGrove Entertainment, LLC v Megna, 81 AD3d 1191, 1192 [2011]; Matter of CBS Corp. v Tax Appeals Trib.of State of N.Y., 56 AD3d 908, 909 [2008], lv denied 12 NY3d 703 [2009]). Tothat end, it is not sufficient for the taxpayer to establish that its construction of the underlyingstatute is plausible; rather, the taxpayer must demonstrate that "its interpretation of the statute is. . . the only reasonable construction" (Matter of CBS Corp. v Tax Appeals Trib.of State of N.Y., 56 AD3d at 910 [internal quotation marks and citations omitted]; seeMatter of Charter Dev. Co., L.L.C. v City of Buffalo, 6 NY3d at 582; Matter of Yellow Book of N.Y., Inc. vCommissioner of Taxation & Fin., 75 AD3d 931, 932 [2010], lv denied 16NY3d 704 [2011]; Matter of AstoriaFin. Corp. v Tax Appeals Trib. of State of N.Y., 63 AD3d 1316, 1318 [2009]). Ourstandard of review in this regard is limited, and "[t]he Tribunal's determination will not bedisturbed if it is rationally based and is supported by substantial evidence in the record, even if adifferent result could have been reached" (Matter of 21 Club, Inc. v Tax Appeals Trib. ofState of N.Y., 69 AD3d at 997; see Matter of Lake Grove Entertainment, LLC vMegna, 81 AD3d at 1192). Applying these principles to the matter before us, we cannot saythat the Tribunal erred in concluding that petitioner's proof as to the claimed exemptions fellshort.
Tax Law § 1105 (f) (1) imposes a sales tax upon "[a]ny admission charge. . . in excess of ten cents to or for the use of any place of amusement in the state,except charges for admission to . . . dramatic or musical arts performances"(emphasis added). For purposes of the statute, an "admission charge" means "[t]he amount paidfor admission, including any service charge and any charge for entertainment or amusement orfor the use of facilities therefor" (Tax Law § 1101 [d] [2]), and a "dramatic or musical artsadmission charge" is defined as "[a]ny admission charge [*3]paidfor admission to a theatre, opera house, concert hall or other hall or place of assembly for a livedramatic, choreographic or musical performance" (Tax Law § 1101 [d] [5]). Additionally,a "place of amusement" is defined as "[a]ny place where any facilities for entertainment,amusement, or sports are provided" (Tax Law § 1101 [d] [10]), which includes, withoutlimitation, "a theatre of any kind . . . or other place where a performance is given"(20 NYCRR 527.10 [b] [3] [i]).
Although the parties debate whether petitioner's club may be deemed to be the functionalequivalent of a theater-in-the-round—a notion expressly rejected by theTribunal—there is no question that the club qualifies as a place of amusement under theexpansive definition set forth in Tax Law § 1101 (d) (10) and the accompanyingregulation.[FN2]Hence, the issue distills to whether the club's admission and private dance fees constitute chargesfor admission to a "live dramatic, choreographic or musical performance" (Tax Law §1101 [d] [5]; see § 1105 [f] [1]).[FN3][*4]
Petitioner's expert witness, a cultural anthropologist whohas conducted extensive research in the field of exotic dance, defined "choreography" as "thecomposition and arrangement of dances." Based upon her personal observations gleaned from avisit to petitioner's club, as well as her review of the dances depicted on the Nite Moves DVDentered into evidence at the administrative hearing and her interviews with certain of the club'sdancers, the expert opined that "the presentations at Nite Moves are unequivocally live dramaticchoreographic performances." In support of that opinion, the expert testified at length regardingthe sequential components, aesthetics and principles of exotic dance and, in her report, set forththe choreographic sequence and characteristics of the on-stage dances she viewed on theforegoing DVD. The expert further concluded that the private dances performed at petitioner'sclub involved "similar kinds of movements" as those portrayed by the dancers she observed onstage and, therefore, also qualified as choreographed performances.
In our view, there can be no serious question that—at a bareminimum—petitioner failed to meet its burden of establishing that the private dancesoffered at its club were choreographed performances. Petitioner's expert, by her own admission,did not view any of the private dances performed at petitioner's club and, instead, based her entireopinion in this regard upon her observations of private dances performed in other adultentertainment venues. None of the DVDs entered into evidence at the administrative hearingdepicted the private dances in question, and neither the generalized testimony—as offeredby one of the club's dancers—that the private performances "still use[d] dance moves" northat dancer's description of a particular move she often would employ while performing such adance was sufficient to establish that these private performances were in fact choreographed.Given the dearth of evidence on this point, the Tribunal's conclusion that petitioner was notentitled to the requested exemption insofar as it related to the club's couch/private dance saleswas entirely rational and, as such, will not be disturbed.
We must reach a similar conclusion as to the taxability of petitioner's door admissioncharges. Although petitioner argues that the detailed testimony of its expert was more thansufficient to discharge its burden on this point, the Tribunal essentially discounted this testimonyin its entirety, leaving petitioner with little more than the Nite Moves DVD to demonstrate itsentitlement to the requested exemption. In this regard, while the Tribunal's definition of the termchoreography did not differ significantly from the one employed by petitioner's expert, theTribunal characterized the expert's interpretation of a choreographed performance as "stunninglysweeping"—deeming it to be "so broad as to include almost any planned movements[performed to] canned music." The Tribunal also noted what it construed as the expert's attemptto tailor her [*5]testimony and corresponding report to "neatly fitinto the statutory exemption language" and viewed her testimony regarding the private dancesoffered at petitioner's club as particularly suspect, finding that "the certainty with which [theexpert] holds to [her] conclusion[s], even in the absence of direct knowledge or observation ofwhat occurs in the private areas at Nite Moves, undermine[s] her overall testimony." Credibilitydeterminations, including the weight to be accorded to an expert's testimony, are matters that lie"solely within the province of the administrative factfinder" (Matter of Kosich v New York State Dept. of Health, 49 AD3d 980,984 [2008], lv dismissed 10 NY3d 950 [2008]; see Matter of Suburban RestorationCo. v Tax Appeals Trib. of State of N.Y., 299 AD2d 751, 752 [2002]; Matter of Brahmsv Tax Appeals Trib., 256 AD2d 822, 825 [1998]) and, "absent any indication of the arbitraryexercise of the power thus conferred" (Matter of Pearson [Catherwood], 27 AD2d 598[1966]), we lack the authority to disturb them (see Matter of Gordon v Tax AppealsTrib., 243 AD2d 828, 830 [1997]). We perceive no such arbitrariness here.
Nor can we say that the Tribunal erred in concluding that the balance of petitioner's proofwas insufficient to establish its entitlement to the exemption set forth in Tax Law § 1105(f) (1). The record reflects that the club's dancers are not required to have any formal dancetraining and, in lieu thereof, often rely upon videos or suggestions from other dancers to learntheir craft. The one dancer who testified at the hearing did not extensively discuss the nature ofthe performances encompassed by the club's door admission charge, and the Nite Moves DVDdoes not—standing alone—demonstrate that the on-stage dances qualified aschoreographed performances, thereby falling within the ambit of the cited exemption.Accordingly, inasmuch as the Tribunal's determination has a rational basis and petitioner failedto demonstrate its entitlement to the claimed exemption, the determination must be confirmed.
Petitioner next contends that, even if the sales at issue are taxable under Tax Law §1105 (f) (1), those very same sales are "exempt" from taxation under Tax Law § 1105 (f)(3), the latter of which imposes sales tax upon "[t]he amount paid as charges of a roof garden,cabaret or other similar place in the state." To that end, Tax Law § 1101 (d) (12) defines a"roof garden, cabaret or other similar place" as "[a]ny roof garden, cabaret or other similar placewhich furnishes a public performance for profit, but not including a place where merely livedramatic or musical arts performances are offered in conjunction with the serving or selling of. . . refreshment[s] . . . , so long as such serving or selling. . . is merely incidental to such performances." Even assuming, among other things,that the cited provisions actually create a true "exemption,"[FN4]as opposed to simply limiting the definition of roof garden, cabaret or other similar place, wenonetheless find the Tribunal's denial of the claimed "exemption" to be rational.
The Tribunal expressly found that petitioner's club constituted a cabaret or similar placewhere a public performance is staged for profit, and the record as a whole certainly supports thisfinding. Indeed, petitioner acknowledges that it "might" be a cabaret but argues that, because itprovides "live dramatic or musical arts performances" and its beverage sales are "merelyincidental to such performances," it is outside the taxable reach of Tax Law § 1105 (f) (3).In this regard, although the Tribunal's decision focuses primarily upon whether the club's registersales from the nonalcoholic beverages sold qualify as incidental, implicit in its analysis of TaxLaw § 1105 (f) (3)—and its corresponding rejection of petitioner's claimed"exemption" [*6]thereunder—is a finding that the dancesoffered at petitioner's club did not constitute "live dramatic or musical arts performances" withinthe meaning of the statute. Having already found that the Tribunal's resolution of that factualissue was rational, we need not proceed to consider whether petitioner's beverage sales wouldqualify as incidental.[FN5]
Finally, we find no merit to petitioner's various constitutional claims. Simply put, each of thestatutory provisions at issue is facially neutral and in no way seeks to levy a tax upon exoticdance as a form of expression. Further, and contrary to petitioner's conclusory assertions, there isnothing in the record to suggest that the subject taxing scheme is being applied in adiscriminatory manner. Notably, neither the Tribunal's decision nor the underlying statutespreclude an adult juice bar from qualifying for the claimed exemptions under a different set ofcircumstances, and the record as a whole fails to support petitioner's claim that the relevant feeswere taxed for some reason other than the legitimate collection of sales tax revenues. In short,petitioner was denied the requested relief due not to the nature of its business but, rather, becauseof the inadequacy of its proof. Petitioner's remaining contentions, to the extent not specificallyaddressed, have been examined and found to be lacking in merit.
Peters, J.P., Spain, McCarthy and Garry, JJ., concur. Adjudged that the determination isconfirmed, without costs, and petition dismissed.
Footnote 1: Petitioner paid the applicabletax on the register sales, and the Division determined that the house fees were not taxable.
Footnote 2: Contrary to the parties'respective assertions, we do not find the Court of Appeals' decision in Matter of 1605 BookCtr. v Tax Appeals Trib. of State of N.Y. (83 NY2d 240 [1994], cert denied 513 US811 [1994]), which addressed the applicability of Tax Law § 1105 (f) (1) to receiptsderived from coin-operated peep show booths, to be dispositive of the matter now before us. Thecentral issue in that case was whether the booths constituted places of amusement or, as thepetitioner contended, "devices such as jukeboxes and video games" (id. at 244). Thus, theCourt's finding that "[t]he booths are factually not taxably distinguishable from a usual theaterexcept for the element of privacy" (id. at 245) does not speak to the underlying disputehere—namely, whether the dances offered at petitioner's club may be deemed to bechoreographed performances.
Footnote 3: In this regard, respondentCommissioner of Taxation and Finance argues on review that petitioner is not entitled to thecited exemption because it failed to establish that the fees collected by the club were"exclusively" attributable to, insofar as is relevant to this proceeding, a choreographedperformance. Specifically, the Commissioner notes that the club's admission charge allowspatrons to, among other things, mingle and converse with the dancers—activities thathardly may be construed as choreographed under any definition—and, therefore, suchcharge is not paid "solely" to view a choreographed performance. As evidence of this assertedexclusivity requirement, the Commissioner points to one of the examples (No. 4) set forth in 20NYCRR 527.10 (d) (2)—the regulation governing admission charges excluded under TaxLaw § 1105 (f).
Although the validity of this particular argument ultimately need not detain us (seeinfra), we note in passing that neither the text of the statute itself nor the language of the relevantimplementing regulation limits the definition of "dramatic or musical arts admission charge" inthis fashion (see generally Matter of Cecos Intl. v State Tax Commn., 71 NY2d 934, 937[1988]). Further, as "an example merely serves as a speculative and hypothetical illustration of aregulation, it is not entitled to the same degree of judicial deference as [the actual] regulation"(Matter of St. Joe Resources Co. v New York State Tax Commn., 132 AD2d 98, 102[1987], revd on other grounds 72 NY2d 943 [1988]; see Matter of ADP AutomotiveClaims Servs. v Tax Appeals Trib., 188 AD2d 245, 249 [1993], lv denied 82 NY2d655 [1993]) or, for that matter, the relevant statute.
Footnote 4: Tax Law § 1123 wasenacted in December 2006 to accomplish this feat (L 2006, ch 279, § 1).
Footnote 5: In light of the foregoing, we alsoneed not address the Tribunal's conclusions regarding the applicability of Tax Law § 1105(d).