Matter of 677 New Loudon Corp. v State of N.Y. Tax Appeals Trib.

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Matter of 677 New Loudon Corp. v State of New York Tax Appeals Trib. 2011 NY Slip Op 04787 Decided on June 9, 2011 Appellate Division, Third Department Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. This opinion is uncorrected and subject to revision before publication in the Official Reports.

Decided and Entered: June 9, 2011

[*1]In the Matter of 677 NEW LOUDON CORPORATION, Doing Business as NITE MOVES, Petitioner,



Calendar Date: April 20, 2011
Before: Peters, J.P., Spain, McCarthy, Garry and Egan Jr., JJ.

W. Andrew McCullough, Midvale, Utah, for
Eric T. Schneiderman, Attorney General, Albany
(Robert M. Goldfarb of counsel), for Commissioner of Taxation and
Finance, respondent.
Egan Jr., J.
Proceeding pursuant to CPLR article 78 (initiated in this
Court pursuant to Tax Law § 2016) to review a determination of
respondent Tax Appeals Tribunal which sustained 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, Albany County, where patrons may view
exotic dances performed by women in various stages of undress.
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 fee charged when a dancer performs for
a customer in one of the club's private rooms; register sales from
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 the door
admission charges and private dance sales were subject to sales
tax, which petitioner had [*2]neglected to pay,Petitioner paid the applicable tax on the register sales, and the Division determined that the house fees were not taxable. 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 the club €" both on stage and in the
private rooms €" qualified as "dramatic or musical arts
performances" and, therefore, the corresponding fees charged for those
services were exempt from taxation under Tax Law § 1105 (f)
(1). At the conclusion of the hearing that followed, the
Administrative Law Judge (hereinafter ALJ) agreed, finding that the
subject fees were not taxable under that provision. The ALJ also
rejected the Division's assertion that liability alternatively could
be imposed under Tax Law § 1105 (d) (i) and (f) (3). The
Division filed an exception and, following oral argument, respondent
Tax Appeals Tribunal reversed the ALJ's decision, concluding
that sales tax liability could be imposed under each of the cited
subdivisions. Petitioner then commenced this CPLR article 78
proceeding to challenge the Tribunal's determination.
It is well settled that "[s]tatutes creating tax exemptions
must be construed against the taxpayer" (Matter of Federal
Deposit Ins. Corp. v Commissioner of Taxation & Fin., 83
NY2d 44, 49 [1993] [internal quotation marks and citation
omitted]; see Matter of Charter Dev. Co., L.L.C. v City of Buffalo, 6
NY3d 578, 582 [2006]; Matter of 21 Club, Inc. v Tax Appeals
Trib. of State of N.Y., 69 AD3d 996, 997 [2010]; Matter of XO
N.Y., Inc. v Commissioner of Taxation & Fin., 51 AD3d 1154,
1154-1155 [2008]), and the taxpayer, in turn, bears the burden
of establishing that the requested exemption applies (see id.; see
also Matter of Lake Grove 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]). To that end, it is not sufficient for the
taxpayer to establish that its construction of the underlying statute 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];
see Matter of Charter Dev. Co. L.L.C. v City of Buffalo, 6
NY3d at 582; Matter of Yellow Book of N.Y., Inc. v Commissioner of
Taxation & Fin., 75 AD3d 931, 932 [2010], lv denied 16 NY3d
704 [2011]; Matter of Astoria Fin. Corp. v Tax Appeals Trib. of
State of N.Y., 63 AD3d 1316, 1318 [2009]). Our standard of
review in this regard is limited, and "[t]he Tribunal's
determination will not be disturbed if it is rationally based and is
supported by substantial evidence in the record, even if a different
result could have been reached" (Matter of 21 Club, Inc. v Tax
Appeals Trib. of State of N.Y., 69 AD3d at 997; see Matter of
Lake Grove Entertainment, LLC v Megna, 81 AD3d at 1192).
Applying these principles to the matter before us, we cannot say
that the Tribunal erred in concluding that petitioner's proof as to
the claimed exemptions fell short.
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 paid for admission, including any service charge
and any charge for entertainment or amusement or for the use of
facilities therefor" (Tax Law § 1101 [d] [2]), and a "dramatic or
musical arts admission charge" is defined as "[a]ny admission
charge [*3]paid for admission to a theatre, opera house, concert hall
or other hall or place of assembly for a live dramatic,
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, without
limitation, "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 functional equivalent of a theater-in-the-round
€" a notion expressly rejected by the Tribunal €" there is no
question that the club qualifies as a place of amusement under
the expansive definition set forth in Tax Law § 1101 (d) (10)
and the accompanying regulation Contrary to the parties' respective assertions, we do not find the Court of Appeals' decision in Matter of 1605 Book Ctr. v Tax Appeals Trib. of State of N.Y. (83 NY2d 240 [1994], cert denied 513 US 811 [1994]), which addressed the applicability of Tax Law § 1105 (f) (1) to receipts derived from coin-operated peep show booths, to be dispositive of the matter now before us. The central issue in that case was whether the booths constituted places of amusement or, as the petitioner contended, "devices such as jukeboxes and video games" (id. at 244). Thus, the Court's finding that "[t]he booths are factually not taxably distinguishable from a usual theater except for the element of privacy" (id. at 245) does not speak to the underlying dispute here €" namely, whether the dances offered at petitioner's club may be deemed to be choreographed performances. .
Hence, the issue distills to whether the club's admission and
private dance fees constitute charges for admission to a "live
dramatic, choreographic or musical performance" (Tax Law §
1101 [d] [5]; see Tax Law
§ 1105 [f] [1]).[FN3] [*4]
Petitioner's expert witness, a cultural anthropologist who
has conducted extensive research in the field of exotic dance,
defined "choreography" as "the composition and arrangement of
dances." Based upon her personal observations gleaned from a
visit to petitioner's club, as well as her review of the dances
depicted on the Nite Moves DVD entered into evidence at the
administrative hearing and her interviews with certain of the
club's dancers, the expert opined that "the presentations at Nite
Moves are unequivocally live dramatic choreographic
performances." In support of that opinion, the expert testified at
length regarding the sequential components, aesthetics and principles
of exotic dance and, in her report, set forth the choreographic
sequence and characteristics of the on-stage dances she viewed
on the foregoing DVD. The expert further concluded that the
private dances performed at petitioner's club involved "similar
kinds of movements" as those portrayed by the dancers she
observed on stage and, therefore, also qualified as
choreographed performances.
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 offered 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 entire opinion in this regard upon her
observations of private dances performed in other adult
entertainment venues. None of the DVDs entered into evidence at the
administrative hearing depicted the private dances in question,
and neither the generalized testimony €" as offered by one of the
club's dancers €" that the private performances "still use[d] dance
moves" nor that dancer's description of a particular move she
often would employ while performing such a dance 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 not entitled to the
requested exemption insofar as it related to the club's
couch/private dance sales was entirely rational and, as such, will not be
We must reach a similar conclusion as to the taxability of
petitioner's door admission charges. Although petitioner argues
that the detailed testimony of its expert was more than sufficient
to discharge its burden on this point, the Tribunal essentially
discounted this testimony in its entirety, leaving petitioner with
little more than the Nite Moves DVD to demonstrate its
entitlement to the requested exemption. In this regard, while the
Tribunal's definition of the term choreography did not differ
significantly from the one employed by petitioner's expert, the
Tribunal characterized the expert's interpretation of a choreographed
performance as "stunningly sweeping" €" 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 attempt to tailor her [*5]testimony and corresponding
report to "neatly fit into the statutory exemption language" and
viewed her testimony regarding the private dances offered at
petitioner's club as particularly suspect, finding that "the
certainty with which [the expert] holds to [her] conclusion[s], even in
the absence of direct knowledge or observation of what occurs
in the private areas at Nite Moves, undermine[s] her overall
testimony." Credibility determinations, 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 Restoration Co. v Tax Appeals Trib. of State of N.Y., 299
AD2d 751, 752 [2002]; Matter of Brahms v Tax Appeals Trib.,
256 AD2d 822, 825 [1998]) and, "absent any indication of the
arbitrary exercise of the power thus conferred" (Matter of
Pearson [Catherwood], 27 AD2d 598, 598 [1966]), we lack the
authority to disturb them (see Matter of Gordon v Tax Appeals Trib.,
243 AD2d 828, 830 [1997]). We perceive no such arbitrariness
Nor can we say that the Tribunal erred in concluding that
the balance of petitioner's proof was 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 dance training and, in lieu thereof, often rely
upon videos or suggestions from other dancers to learn their
craft. The one dancer who testified at the hearing did not
extensively discuss the nature of the performances encompassed by the
club's door admission charge, and the Nite Moves DVD does
not €" standing alone €" demonstrate that the on-stage dances
qualified as choreographed performances, thereby falling within
the ambit of the cited exemption. Accordingly, inasmuch as the
Tribunal's determination has a rational basis and petitioner failed
to 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 place which furnishes a public performance for profit,
but not including a place where merely live dramatic 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, we
nonetheless 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 place where a public performance is
staged for profit, and the record as a whole certainly supports
this finding. Indeed, petitioner acknowledges that it "might" be a
cabaret but argues that, because it provides "live dramatic or
musical arts performances" and its beverage sales are "merely
incidental 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 register sales
from the nonalcoholic beverages sold qualify as incidental,
implicit in its analysis of Tax Law § 1105 (f) (3) €" and its
corresponding rejection of petitioner's claimed "exemption" [*6]thereunder
€" is a finding that the dances offered at petitioner's club did not
constitute "live dramatic or musical arts performances" within
the meaning of the statute. Having already found that the
Tribunal's resolution of that factual issue was rational, we need not
proceed to consider whether petitioner's beverage sales would
qualify as incidental.[FN5]
Finally, we find no merit to petitioner's various
constitutional claims. Simply put, each of the statutory provisions at
issue is facially neutral and in no way seeks to levy a tax upon
exotic dance as a form of expression. Further, and contrary to
petitioner's conclusory assertions, there is nothing in the record
to suggest that the subject taxing scheme is being applied in a
discriminatory manner. Notably, neither the Tribunal's decision
nor the underlying statutes preclude an adult juice bar from
qualifying for the claimed exemptions under a different set of
circumstances, and the record as a whole fails to support
petitioner's claim that the relevant fees were 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, because of the inadequacy of
its proof. Petitioner's remaining contentions, to the extent not
specifically addressed,


have been examined and found to be lacking in merit.

Peters, J.P., Spain, McCarthy and Garry, JJ., concur.

ADJUDGED that the determination is confirmed, without costs, and petition dismissed. Footnotes

Footnote 3:In this regard, respondent Commissioner of Taxation and Finance argues on review that petitioner is not entitled to the cited 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 choreographed performance. Specifically, the Commisioner notes that the club's admission charge allows patrons to, among other things, mingle and converse with the dancers €" activities that hardly may be construed as choreographed under any definition €" and, therefore, such charge is not paid "solely" to view a choreographed performance. As evidence of this asserted exclusivity requirement, the Commissioner points to one of the examples (No. 4) set forth in 20 NYCRR 527.10 (d) (2) €" the regulation governing admission charges excluded under Tax Law § 1105 (f). Although the validity of this particular argument ultimately need not detain us (see infra), we note in passing that neither the text of the statute itself nor the language of the relevant implementing regulation limits the definition of "dramatic or musical arts admission charge" in this 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 a regulation, 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 Automotive Claims Servs. v Tax Appeals Trib., 188 AD2d 245, 249 [1993], lv denied 82 NY2d 655 [1993]) or, for that matter, the relevant statute.

Footnote 4:Tax Law § 1123 was enacted in December 2006 to accomplish this feat (L 2006, ch 279, § 1).

Footnote 5:In light of the foregoing, we also need not address the Tribunal's conclusions regarding the applicability of Tax Law § 1105 (d).