Points for creativity: A midtown strip club was denied $3 million in tax relief after claiming that its exotic dancers were the equivalents of masseuses or sex therapists, and thus not subject to taxes. The Daily News reported that the Penthouse Executive Club made that argument to a New York state tax appeals tribunal and was rebuffed last month.
At issue was the club’s sale of “executive dollars,” which is essentially play money that’s sold on the premises. Customers use it to buy dances or tip hosts. The dancers and club employees then exchange it for real cash at the end of the night.
After auditing the club in 2010 and 2011, the New York Department of Taxation and Finance determined that the club had to pay $3.1 million in taxes on the sale of $28.4 million in executive dollars, ruling that they were basically the same as admission tickets to an amusement park.
Although in this case customers handed over tickets to be ridden, instead of to ride anything – that likely would’ve been a distinction that didn’t make a difference to the tax tribunal. In an April 19 decision, they shot down Penthouse’s argument “that what is provided in its clubs is not entertainment, but rather a nontaxable service similar to a therapeutic massage conducted in a sensual manner or personal services provided by a sex therapist.”
The tribunal claimed the club hadn’t provided evidence to back that up (although it was not reported what kind of evidence would have qualified).
Penthouse then argued that the executive dollars were like play money bought at flea markets and given to individual sellers. Exotic dancers, the club argued, are independent contractors. The government didn’t buy that either, and the bill for $3.1 million was reaffirmed.
Penthouse Executive Club, like everything that doesn’t involve a computer, a credit card and the privacy of your own home, has fallen on hard times of late: The club has been sued by the parent company of Penthouse for falling behind on its licensing payments to the tune of almost $200,000. And in a different lawsuit in 2016, the club owner wrote in a court filing that the club’s revenue had fallen steeply in the past few years.