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Update: Some NYC Yoga Classes Taxable

July 30th, 2012 1 comment

Two weeks ago I wrote about whether yoga classes held in New York City are subject to sales tax.

Perhaps the NYS Department of Taxation & Finance took notice, because one week later the Department issued a tax bulletin clarifying its interpretation of the sales tax law as applied to yoga classes in NYC:

Facilities in New York City that offer only instruction in various yoga disciplines are not considered to be weight control salons, health salons, or gymnasiums. As a result, charges by these facilities for yoga classes are not subject to the New York City local sales tax. …

Charges for yoga instruction by a facility that otherwise qualifies as a weight control salon, health salon, or gymnasium (e.g., a facility that also offers its customers access to exercise equipment or to Pilates or aerobics classes) are subject to the New York City local sales tax.

Previously, NYC yoga studios were under the impression that all yoga classes were considered weight control salons, health salons, or gymnasiums, and thus subject to the local sales tax.

Interesting that the State is now opening the door for yoga studios to structure their businesses such that classes aren’t subject to the sales tax. My guess is that when initially approached about the issue, the Department took the safe route with a blanket position. But after assigning the task to counsel, they realized the legal interpretation was too broad.

Back to mind-body therapy…

(Hat tip: Kay Bell)

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Online Sales Tax or Internet Poker in 2012?

July 22nd, 2012 1 comment

Proponents of an online sales tax and of the legalization and regulation of internet poker received some intriguing news last week.

First, the possible federal online sales tax.

Amazon has recently reached agreements with several states to collect and remit sales tax on purchases in those states. One problem with this piecemeal approach, however, is that online retailers are stuck with the burdensome task of complying with each state’s different regime. Plus, not all states have entered into such agreements.

Last Thursday, Senate Majority Leader Harry Reid made remarks regarding possible online sales tax legislation, predicting it could pass this year, according to The Hill.

This WSJ piece provides additional background about the online sales tax issues and points of contention among lawmakers and lobbyists.

Second, internet poker.

Since the Department of Justice shifted its stance on the Wire Act last December, states have taken steps to legalize and regulate intrastate online gambling. Similar to the online sales tax issue, a state-by-state approach presents a variety of compliance obstacles for companies seeking to run internet poker websites licensed in the U.S.

The Las Vegas Review-Journal is reporting Senator Dean Heller (R-NV) is working to persuade fellow GOP lawmakers in Congress to support internet poker legislation. Senator Reid and Senator Kyl have reportedly agreed on a bill framework, although the bill hasn’t surfaced yet.

Reid has said he wants the internet poker sites run by Nevada gaming companies. This position has drawn the ire of Native American tribes and state lotteries, among other parties, who also want a piece of the action. In fact, this Thursday the U.S. Senate Committee on Indian Affairs will hold a hearing on the regulation of tribal gaming, to disuss both brick and mortar and internet gaming issues.

As for whether 2012 is the year legislation is passed in Congress, both issues face similar hurdles. Either bill would likely need to be attached to a legislative vehicle, and there aren’t many remaining. GOP support may be lacking as well. Of course, there’s always the lame duck session, but as The Hill notes, bigger ticket issues such as Bush-era tax rates and automatic spending cuts will likely dominate that agenda.

In the meantime, states will continue to address these issues as they please.

NYC Yoga Classes Are Taxable

July 17th, 2012 No comments

Attention New York City yoga studio attendees: Your dues may increase.

The WNYC News Blog is reporting that due to a tax bulletin issued by the New York State Department of Taxation and Finance, yoga studios located in the city must collect and remit a 4.5 percent sales tax on yoga classes.

NY Tax Law Section 1212-A(a)(2) imposes tax on the receipt of sales in New York City for services provided by weight control salons, health salons, gymnasiums, turkish and sauna bath and similar establishments.

Before the bulletin was issued, yoga studios apparently believed that they were not considered a “similar establishment” under the tax law. And the State probably didn’t care to address the interpretation until yoga became so popular.

The State interprets “similar establishment” to mean a health and fitness club. It seems reasonable given the specific types of taxable services listed in the statute. Since people participate in yoga exercises in order to improve their health, I believe yoga is taxable under the law.

If, however, the health and fitness club also provides access to participant sporting activities and facilities, then it may instead be considered an athletic club. In New York, sales tax is imposed on dues and membership fees paid to any athletic club in the state, not just in New York City.

As for the “new” NYC yoga tax, the Department of Taxation and Finance plans to issue regulations shortly.

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Nevada Tax Commission Approves Comped Meals Tax

June 27th, 2012 No comments

Last January the Nevada Tax Commission upheld a decision requiring a major casino company (Boyd Gaming) to collect and remit sales tax on the value of complementary meals provided to its gamblers. Boyd apparently plans to take the case to the Nevada Supreme Court.

In the meantime, the Nevada Tax Commission passed regulations on Monday requiring the state’s casinos and restaurants to pay sales tax on complementary meals provided to its employees and its patrons, reports the Las Vegas Review-Journal.

The Nevada Tax Department issued the regulations last February; casinos and restaurants must remit to the state, by July 15, taxes on meals comped as of February 15, 2012.

The tax base for comped employee meals is the cost of the food when purchased by the employer. The tax base for comped patron meals is the menu price.

Some implicated businesses may stop offering comped meals. Others may refuse to pay up awaiting a court decision and could face a possible 25 percent penalty, plus interest.

State of the Amazon: Update

April 29th, 2012 No comments

Last Wednesday I wrote a brief “State of the Amazon.” Between then and now, the piece became incomplete. It’s already time for an update.

Illinois:

In March 2011, the Main Street Fairness Act was passed. The law expanded the definition of “physical presence.” A seller is required to collect and remit sales tax only if it is deemed to have a physical presence within the state. The new law implicated affiliate companies, many of which earn commissions for directing web surfers to an online store.

The Chicago Tribune is reporting the Main Street Fairness Act was declared unconstitutional by Cook County Circuit Judge Robert Lopez Cepero last week. The interstate commerce clause of the U.S. Constitution limits who a state can tax, and the judge took the position the State of Illinois overstepped its authority.

I suspect the defendant, the Illinois Department of Revenue, will file an appeal if it hasn’t already.

Texas:

The Houston Chronicle is reporting the Lone Star State reached an agreement with Amazon on Friday for the online retail giant to begin collecting sales tax in the state on July 1. In addition, Amazon agreed “to create at least 2,500 new jobs in Texas over the next four years and make at least $200 million in capital investments in the state.”

All parties seem to be in support of some federal solution, but that doesn’t mean anything will get done. We’ll see.

More Amazon Sales Tax Agreements

April 25th, 2012 No comments

Amazon.com is currently the world’s largest online retailer. Many of Amazon’s products, if sold in brick and mortar locations, would be subject to sales tax in the state of sale. And it’s at least an arguable—if not compelling—case that those same products sold on the internet would be subject to sales tax in the state where the consumer sits.

Currently, Amazon.com collects sales tax in only five of 45 states that impose a sales tax. The five states: Kansas, Kentucky, New York, North Dakota, and Washington.

Many if not all of the other 40 states also want their share. Amazon has responded to such demands by threatening to end or actually ending relationships with local affiliates or by simply leaving a state.

Most recently, however, Amazon appears to be backing down. Within the past year Amazon has reached agreements with California, Indiana, South Carolina, and Tennessee to collect sales tax at a later date.

The Citizens for Tax Justice is reporting the latest developments, including an agreement with The Silver State:

  • In Nevada, Amazon.com will begin collecting sales taxes in 2014 under a new agreement announced on Monday. The company already has major warehouses and distribution centers in the state. Amazon’s agreement with Nevada is similar to deals struck in California, Indiana, South Carolina, Tennessee, and Virginia.
  • As in Nevada, Amazon’s deal to begin collecting sales taxes in Tennessee won’t take effect until 2014, but a lesser known part of that agreement has already taken effect. Amazon is mailing notices to all its Tennessee customers from throughout the past year letting them know that they may owe sales tax on the items they bought from the company, even though Amazon didn’t collect those taxes for them. Similar annual notices will be sent by February 1st in both 2013 and 2014.
  • The Massachusetts Main Street Fairness Coalition is continuing its calls for the state to require that Amazon collect sales taxes, and The Boston Globe just chimed in to support the idea as well. As the Globe explains, the company’s new offices in Massachusetts should be enough to bring the company within reach of the state’s sales tax collection laws.

This piecemeal process is far from ideal, but it’s progress. As far as a possible national solution, federal lawmakers are making efforts. But as everyone knows, controversial pieces of legislation on Capitol Hill are unlikely to gain significant traction during an election year.

The federal versus state debate in this context in some ways draws similarities to the debate on the legalization and regulation of internet gambling. Under both the sales tax and gambling tax regimes, the generated revenues end up in state coffers. Each state should reserve some significant powers to regulate these areas in the internet space to meet its own needs.

A federal bill that sets minimum standards and offers each state the flexibility for how to structure its own tax system sounds like a win-win to me. But again, that requires Congress to get something done. I’m not holding my breath.

Sales Tax on Comped Meals Heading to Nevada Supreme Court

January 25th, 2012 No comments

Last August, I wrote about a tax case in Nevada requiring Boyd Gaming to collect and remit sales tax on the value of complementary meals provided to its gamblers. Boyd Gaming then appealed the decision to the Nevada Tax Commission.

The Las Vegas Sun is reporting that the Nevada Tax Commission affirmed the ALJ determination. The millions paid by Boyd to the State representing the sales tax at issue for certain periods will stay with the state. At least for now.

This issue isn’t significant only for Boyd Gaming. According to the article, every casino in the state has a similar appeal pending. I have no reason to believe the results of pending appeals will be any different.

The issue is whether the comped meals are provided in exchange for the player’s agreement to gamble. If so, the transaction is considered a retail sale subject to sales tax in the state. The Nevada Supreme Court is likely to examine the issue.

If the Nevada Tax Department prevails, we may see a major change to how casinos approach providing rewards to its patrons.

Food Comps for Gamblers Burn Nevada Casinos

August 11th, 2011 1 comment

The intensity of the tax battle between Boyd Gaming and the Nevada Department of Taxation appears to have reached an all time high. And other Nevada casinos are closely paying attention. Both parties are appealing an April decision (linked below), which held that the casino is required to collect and remit sales tax on the value of complementary meals provided to its gamblers.

That’s right. The decision requires casinos to pay to the state of Nevada sales tax on transactions that don’t generate gross receipts. Well, it’s not that simple, according to Administrative Law Judge Dena James Smith.

Reported in a story by the Las Vegas Sun, the judge analyzed Boyd’s “reward points” structure, and reasoned that the meals were anything but complimentary. Instead, she wrote they were provided “directly in exchange for…a certain amount of gambling…. [Boyd] simply did not award complimentary meals when they had not received something of value or expected to receive something of value in return.”

Ultimately, she held that the value of the complementary meals provided to gamblers, but not to employees, are subject to sales tax.

The decision is significant. The casino claims it’s owed $210 million that the state previously collected under erroneous legal interpretations. The Department of Taxation, meanwhile, believes tens of millions more is owed. Many millions more may be on the line, since many other casinos provide similar food comps.

The issue is not really one of first impression. Back in 2008, the Nevada Supreme Court held that the casino Sparks Nugget did not have to pay use tax on the cost of food used to prepare comped meals. This ruling triggered the Tax Department’s receipt of refund requests from nearly one hundred other Nevada casinos.

Wait, so what makes Boyd Gaming different from Sparks Nugget? Isn’t the Nevada Supreme Court decision binding? Good question. First, some background.

In Nevada, sales tax is imposed on the retail sale of tangible personal property. Nevada also imposes a use tax on consumers for the storage, use or other consumption of tangible personal property. The use tax is complementary to the sales tax, and only one type of tax can be assessed on a single transaction.

There are also exemptions to sales and use taxes. In Nevada, there is an exemption for food for human consumption. There is an exclusion from the exemption, however, for prepared food intended for immediate consumption. Got it?

In Sparks Nugget, the Department’s position was that the casinos owed use tax on the cost of food used to prepare the comped meals. The Department lost. The Department didn’t alternatively assert in Sparks Nugget that the casino owed sales tax on the value of the comped meals. That’s Boyd.

Casinos have the Sparks Nugget majority to blame. That court suggested if consideration was provided in exchange for the comped meal, then there may be a retail sale subject to sales tax. With the Boyd decision in favor of the Department now on appeal, the state’s highest court may have to rule on the very argument it previously invited.

Case: In re Boyd Gaming Corp., ALJ Determination Apr. 22, 2011.

Less Choreography, More Tax

June 12th, 2011 2 comments

Nite Moves, an adult “juice bar” located in upstate New York, learned on Thursday its revenues from lap dances and admission fees are subject to New York state sales tax.

Under NY tax law, admission charges are exempt from sales tax if the charge is for admission to “dramatic or musical arts performances.”  The definition for an “admission charge” is broad, and includes any service charge for entertainment or amusement or for the use of facilities therefor.  At Nite Moves, patrons view women performing exotic dances, either on stage or in some private locale.  Nite Moves viewed these dances as “dramatic or musical arts performances” and had not paid sales tax on revenues from door admission charges or private dance sales.

“Dramatic or musical arts performances” are defined under NY tax law as:

Any admission charge paid for admission to a theatre, opera house, concert hall or other hall of place of assembly for a live dramatic, choreographic or musical performance.

(Emphasis added.)  In order to make its decision, an Appellate court seated in Albany, NY, analyzed whether the exotic dances performed at Nite Moves fell under the scope of this definition.  The burden was on the taxpayer to establish that the exemption applied, and the court held the taxpayer came up short.

The court’s reasoning was based, in part, on the testimony of the taxpayer’s expert witness, who has conducted extensive exotic dance research.  Because the witness did not personally observe any private dances at Nite Moves, she couldn’t say whether the principles of exotic dance that could be considered choreographed performances were on display at Nite Moves.  To the court, this missing piece of information ended the taxpayer’s dance dodging from sales tax liability.

Well, maybe not so fast.  The club’s attorney said they intend to appeal the decision to the state’s highest court, the Court of Appeals.  I’d be very surprised if the court heard the case.  If it is heard, perhaps the expert witness should make a trip to Nite Moves.  (Note, however, the taxpayer may not be able to introduce additional expert witness testimony on appeal.)

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