In May 2014, I drafted a blog post about the application of Washington State sales tax to cover and admission charges for bars, nightclubs and/or eating and drinking establishments. During the 2013 legislative session, the legislature passed legislation temporarily exempting, until 2017, application of the sales tax to cover and admission charges after controversy arose when in 2011 and 2012, when the Washington State Department of Revenue attempted impose the tax on cover and admission charges.
The Washington State Department of Revenue reasoned that because RCW 82.04.50 included “amusement and recreation services” as taxable, and WAC 458-20-183(2)(b) included “charges made for providing the opportunity to dance”, bars, nightclubs and eating and drinking establishments were obligated to collect sales tax on cover and admission charges.
After the passage of the above stated legislation, the question became will the Washington State Legislature make the exemption on collecting sales tax on cover and admission charges permanent after 2017 when the above discussed exemption expires?
During the 2015 legislative legislation, the question was answered. And the answer was yes. Under House Bill 1550, which takes effect on January 1, 2016, RCW 82.04.050 excludes “amusement and recreation services”, and adds language specifically applying sales tax to specific fitness and recreational activities, not including dancing. Curiously, the statute does not include language specifically exempting admission and cover charges from sales tax, but the lack of “amusement and recreation services” being taxable likely prohibits the Department of Revenue from again applying sales tax to cover and admission charges.
To date, the WAC 458-20-183(2)(b) continues to contain the same language that the Department of Revenue previously cited as a justify imposing Washington State sales tax on cover and admission charges. This Section of the WAC has not been updated since 1995, and technically is no longer in compliance with the current language of RCW 82.04.050 or the language that takes effect on January 1, 2016.
Eventually, something will likely result in a rulemaking change being made to WAC 458-20-183 that reflects the revised language of RCW 82.04.050. Given that the revised RCW 82.04.050 language does not specifically exempt cover and admission charges from the sales tax, after January 1, 2016, the Department of Revenue could again attempt to apply sales tax to the said charges, again citing the language in WAC 458-20-183.
However, given the legislative history of RCW 82.04.050, and previous temporary exemption, it is overwhelmingly clear that the legislature does not intend for the sales tax to apply to cover and admission charges. Consequently, a legal challenge of any attempts by the Washington State Department of Revenue to apply the sales tax to cover and admission charges would likely be successful.
It would be in the interest of bars, nightclubs, and/or eating and drinking establishments to submit a request for proposed rulemaking to the Office of the Code Reviser that updates WAC 458-20-183 to reflect the new language in RCW 82.04.050, and lack of authority to apply the sales tax to “amusement and recreation services” or cover and admission charges. Doing so could prevent a bar or nightclub owner from having to hire an attorney to fight the Department of Revenue after an overzealous revenue agent discovered the “dance language” in the WAC, and again attempted to again apply the sales tax to cover and admission charges.