Matter of HDV Manhattan, LLC v. Tax Appeals Trib. of The State of New York
156 A.D.3d 963
| N.Y. App. Div. | 2017Background
- Petitioners (Hustler Club owner and members) operated an adult club in Manhattan with a main public performance area and 16 private rooms where patrons paid for private dances.
- During the audit period customers bought "scrip" (in-house currency) from the club at a 20% markup to pay entertainers; entertainers and floor hosts paid redemption fees to the club when cashing in scrip.
- Department audited June 1, 2006–Nov 30, 2008, assessed sales tax deficiency (reduced on conciliation); petitioners contested taxability of scrip sales and service‑fee income before an ALJ and the Tax Appeals Tribunal.
- ALJ sustained tax on both scrip and service fees; Tribunal reversed as to service‑fee income but upheld tax on scrip sales as admission charges and as taxable cabaret charges; petitioners sought CPLR article 78 review.
- Court of Appeals‑level deference applied to the Tax Appeals Tribunal; review limited to whether Tribunal’s interpretation had a rational basis and was supported by substantial evidence.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether sale of scrip is an "admission charge" taxable under Tax Law §1105(f)(1) | Scrip is not an admission charge because it is separate from room/entertainer fees | Purchase of scrip was required to obtain private dances; thus part of admission charge | Taxable as admission charge; Tribunal rationally found scrip purchase and entertainer fee required for private room access |
| Whether private dances qualify for "dramatic or musical arts" exemption under §1105(f)(1) | Private dances are live dramatic/choreographic performances exempt from tax | Private rooms not theatrical venues and performances lacked required formal/structured content | Exemption denied: petitioners failed venue and content proofs; expert testimony not credited |
| Whether scrip taxable under §1105(f)(3) as charge of a "cabaret or other similar place" | Club is merely a place offering dramatic/musical arts with incidental selling; exclusion applies | Club furnishes public performances (stages, table dances) and also nonpublic private dances; scrip funds entertainment/service and is taxable | Taxable under §1105(f)(3); club is a cabaret/similar place and exclusion inapplicable because private nonpublic dances were significant |
| Constitutional challenges to tax assessment | Various constitutional objections to tax and its application | Challenges previously rejected or not preserved; tax application valid | Constitutional claims rejected as meritless or previously decided against petitioners |
Key Cases Cited
- American Tel. & Tel. Co. v. State Tax Comm'n, 61 N.Y.2d 393 (NY 1984) (articulates deference to administrative interpretation of broadly phrased tax statutes)
- Matter of 677 New Loudon Corp. v. State of N.Y. Tax Appeals Trib., 19 N.Y.3d 1058 (NY 2012) (discusses exemption for dramatic or musical arts and burden on taxpayer)
- Matter of 1605 Book Ctr. v. Tax Appeals Trib. of State of N.Y., 83 N.Y.2d 240 (NY 1994) (treats private rooms as places of amusement for tax purposes)
- Great Lakes-Dunbar-Rochester v. State Tax Comm'n, 65 N.Y.2d 339 (NY 1985) (standard for sustaining administrative tax determinations)