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August 24, 2011 at 11:48 AM

State tax audits of bars and taverns creates a buzz in Seattle

Posted by Andrew Garber

A sweep of bars and taverns in the Seattle area by state tax collectors has created a buzz in recent weeks, but the state contends it's nothing unusual.

The state Department of Revenue says preliminary numbers indicate it's audited 121 bars and taverns statewide, including 44 in the Seattle area, during the past 20 months as part of an effort to see if they're properly paying their taxes.

The focus of the audits has been on the state use tax, which is applied to goods purchased in a state with no sales tax, or one lower than Washington's. They also checked for compliance on other taxes.

It's a larger number of bars than the state usually audits, but DOR focuses on certain taxpayers in a given year to check for compliance, said Mike Gowrylow, a spokesman for the department.

The audits created a stir in Seattle when The Stranger reported earlier this month that the state wanted to charge nightclubs thousands of dollars in back taxes because they had not been paying a "dance tax."

Gowrylow maintains it's not a dance tax. "It's a tax on cover charges imposed on patrons who come somewhere with the intent to dance. It's marketed as a place to dance."

The tax has been on the books since the early 1960s and should come as no surprise, he said. The law states: "A cover charge that entitles guests to an opportunity to dance or to participate in a contest, such as karaoke, is subject to retail sales tax and the Retailing classification of the B&O tax. Sales tax may be included in the amount charged as a cover charge if it is properly posted that tax is included."

Gowrylow said, "I can see why people might be upset if they thought it wasn't subject to a sales tax and found out later that it is. But it's perfectly clear on our website that it is."

Seattle attorney Mark Kimball, who represents the Neighbours nightclub on Capitol Hill, said the state is going after his client for back taxes. He's arguing they don't owe any money, in part because the law has been applied inconsistently.

"Neighbors has been around since 1983. We've never had problems with the Department of Revenue before," he said.

Kimball said he's aware of 20 to 25 other businesses that are concerned about the audits. He doesn't know how many of those have actually been audited, or are concerned about the prospect.

Gowrylow said that out of the 44 Seattle bars audited, they found five that were reporting the taxes incorrectly. The rest were properly paying the taxes, he said.

He noted the state audited more than 8,000 business statewide for tax compliance in 2010.

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@Andy Cutler Yeah they steal that money and buy crap like state troopers and prison guards and sommuniyt corrections officers and child support...  Posted on August 24, 2011 at 9:24 PM by dportjoe. Jump to comment
I am aware that this tax has been around for something like 40 years but cmon, its a really stupid tax.  Posted on August 24, 2011 at 5:01 PM by cmon man. Jump to comment
A dance tax? Really? What a crock. There is already sales tax, b&o tax and all of the other piddly crap taxes that go on top of all the payroll...  Posted on August 24, 2011 at 4:58 PM by cmon man. Jump to comment

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