New York Strip Club Claims Lap Dances AreTax Deductible; Court Disagrees

An alcohol-free strip club in New York believes lap dances and private room acts are tantamount to live theatrical and choreographed art performances and should be tax-exempt. Unfortunately, the Fourth Appellate Court disagreed. As a result, Nite Moves will have to pay approximately $125,000, plus interest to the IRS.

Nite Moves, owned by 677 New Loudon Corp., is an adult "juice bar" that generates income by charging for beverages and snacks, door fees, and private dance fees. The business also collects "house fees" from the dancers.

An administrative law judge had earlier accepted the argument that both on stage and in the private rooms qualified as 'dramatic or musical arts performances," exempting the business from taxes. The Tax Division appealed that ruling and it was reversed Thursday.

The club's corporate attorney, W. Andrew McCullough, said the ruling will most likely be appealed. The establishment has been fighting the tax bill since a 2005 audit. Nite Moves is also contesting another tax bill that is larger than this one, but McCullough says the club will probably contest that one as well.

Most adult establishments serve alcohol and fall under different tax rules than non-alcoholic adult venues. In a nine-page ruling, Associate Justice John C. Egan Jr. compared the elements of choreography performed by ballet dancers, and performers in a gentleman's club environment.

"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,'" he wrote, according to the Times Union.

The defense came to court with its own expert witness, an unnamed cultural anthropologist who had visited the club, studied the dancers' routines, and researched exotic dance. It was her opinion that the club performers' routines were similar to stage performers, and, in her expert opinion, should be considered "live dramatic choreographic performances."

The five-member court panel disagreed with the defendant, citing tax fundamentals and the lack of sufficient evidence. The panel also noted the dancers at Nite Moves had no formal training and "learned their craft" through videos or advice from co-workers.

"We admit the ballet is a little different and maybe a little more finely tuned," McCullough said. Even so, the attorney believes the ruling is based purely on a value judgment.

As a result of the ruling, and barring a successful appeal, Nite Moves will have to start taxing entrance fees and private dances in order to satisfy the IRS. Metro News New York reported that the 8.875 percent tax would cost the club approximately $2 on a $20 dance, so the result will likely mean raising prices on entrance fees and private entertainment.