ANNAPOLIS – Restaurants that provide entertainment for their patrons but do not charge a cover, require a minimum purchase or inflate prices during the performance don’t have to pay an additional amusement tax, the Maryland Court of Appeals ruled Wednesday.
Clyde’s Restaurants in Chevy Chase and Columbia had filed suit saying that the additional tax, which could be up to 10 percent in some counties, would further harm their bar business.
“The entertainment enhances the ambiance of the room, we don’t charge for it,” said Jeffrey Owens, Clyde’s chief financial officer. “I think that it is ridiculous that the state would make us pay an additional 10 percent of our revenue. We are already taking a big hit on our bar business because of the smoking ban.”
Clyde’s has been very active in battling legislation that it perceives as detrimental to its business practices. The restaurant group is a primary plaintiff in a pending lawsuit against the Montgomery County smoking ban that went into effect Oct. 9.
Clyde’s was very pleased with the result in this case, Owens said, but it was not unexpected because the restaurant group won on each level of the appeals process.
Such activism has been tough, said Tom Stone, attorney for the Restaurant Association of Maryland, which joined in the suit.
“It’s very, very difficult for anyone . . . to pay to fight the government,” Stone said. “I mean, it’s been four years.”
The high court ruled that since the restaurant did not charge its patrons for the entertainment and did not receive additional revenue from it, the cost was essentially considered overhead and not subject to the extra tax.
In the ruling, Judge Dale R. Cathell wrote that in the court’s interpretation there is, “the need for both an admission charge and a direct financial nexus between the entertainment and the profit.”
The admission and amusement tax is a county tax and, according to briefs filed by the six largest counties in Maryland, is worth about $3.6 million in revenue statewide in fiscal 2004.
Since the lower court ruling was upheld, the comptroller estimates that $8.4 million in admissions and amusement tax revenue collected between 2001 and 2003 is subject to a refund.
“Obviously, we are disappointed with the result but the courts have spoken and we respect that, but this is something that the General Assembly can fix,” said Gerald Langbaum, assistant attorney general and counsel to the comptroller.
In 2003, the Maryland House of Delegates proposed legislation that would have put the state law more in line with the federal law, which taxes receipts from any and all sales when entertainment is provided. The legislation never reached a vote in the Senate.
In a concurring opinion, Judge Irma Raker wrote that, “where a tax statute’s applicability, as opposed to a tax exemption, is ambiguous on its face, the ambiguity should be read in favor of the taxpayer.”
However, she wrote there still is room for the General Assembly to change the law to conform with the federal statute.