In 2011 and 2012, MDK Law represented a preeminent Seattle nightclub in a dispute with the Washington State Department of Revenue over the Department’s attempt to collect back sales taxes it claimed were due because nightclub patrons “had the opportunity to dance”. Other nightclubs and venues assessed back sales taxes for cover charges in a similar manner include the Tractor Tavern and Century Ballroom.

The Department of Revenue maintained the position that per WAC 458-20-183(2)(b), which included “amusement and recreation services”, including ” charges made for providing the opportunity to dance”, sales tax should have been collected by our client and other establishments for the cover charges. Although our client and the Department of Revenue eventually settled, an effort emerged to pass legislation that would make cover charges for the “opportunity to dance” exempt from sales tax.

The effort to pass legislation exempting cover charges from sales found success in 2013 during the Second Special Legislative Session. Engrossed Substitute Senate Bill 5882, which was sponsored by Sen. Andy Hill (R-45th), contained language that effectively exempted cover and/or admission charges for dancing from the sales tax until 2017.

Per ESSB 5882, the following language was added to RCW 82.04.050(3)(a):

(ii) Until July 1, 2017, amusement and recreation services do not include the opportunity to dance provided by an establishment in exchange for a cover charge.

(iii) For purposes of this subsection (3)(a):

(A) “Cover charge” means a charge, regardless of its label, to enter an establishment or added to the purchaser’s bill by an establishment or otherwise collected after entrance to the establishment, and the purchaser is provided the opportunity to dance in exchange for payment of the charge.

(B) “Opportunity to dance” means that an establishment provides a designated physical space, on either a temporary or permanent basis, where customers are allowed to dance and the establishment either advertises or otherwise makes customers aware that it has an area for dancing;

Under the revised language added by ESSB 5882, cover charges that a patron pays to have the “opportunity to dance” are effectively exempt from Washington State sales tax from October 1, 2013, the date ESSB 5882 took effect, through July 1, 2017. In the meantime, it likely would be in the interests of nightclub and eating and drinking establishment owners to advocate for legislation that permanently exempts cover charges and admission fees from state sales tax.

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