Penthouse Club Dodge 3.1m in state taxes
Article witten by SCN. Additional content from nydailynews.com.
A midtown strip club tried to get out of paying $3.1 million in state taxes by claiming that its dancers are love doctors offering the same nontaxable services that a massage therapist or a sex shrink provides.
Penthouse Executive Club made the X-rated argument to the state's tax appeals tribunal when it tried to have an earlier decision by an administrative law judge tossed.
But the tribunal didn't buy it and instead last month affirmed the judge's decision, ordering the jiggle joint to cough up the loot.
The tax fight stemmed from the club's use of "executive dollars," an in-house currency that patrons can use to buy dances from strippers or to tip the hosts. The exotic dancers and hosts can then exchange the play money for real cash at the end of the night -- although the club's management charges a 13% fee for the exchange.
The state Department of Taxation and Finance had determined through audits in 2010 and 2011 that the club needed to pay taxes on the sale of the currency because it was equivalent to the admission charges at an amusement park.
That meant the club was on the hook to pay taxes on $28.4 million in sales of the executive dollars.
Penthouse protested the assessment, arguing "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 wrote in its April 19 decision.
But in its decision, the tribunal said the club gave no evidence to bolster their argument.
The club also argued that the "executive dollars" were similar to the play money sold at a flea market for the convenience of its independent concessionaires. In this case, Penthouse said, their dancers were independent contractors.
The tribunal, again, wasn't swayed.
A lawyer for Penthouse Executive Club did not respond to a request for comment.
The tax man hasn't been all bad to the club.
The Daily News reported in 2010 that the city granted the club's owner a partial property tax exemption, saving them $37,000 that year.
But the frisky business has had its fiscal bumps in recent years.
The Executive Club, the holding company that owns the strip joint, was slapped with a lawsuit last year by General Media Communications, which licenses the Penthouse magazine name. The lawsuit accused the Executive Club of falling behind in its licensing payments and owing $199,312.
The club is currently challenging the lawsuit.
Robert Gans, the owner of the club, also wrote in a court filing in a separate case in 2016 that his business' gross receipts had greatly diminished in the previous four years.
Gans said that, because of the downturn, the club was having trouble meeting its rental obligations in a timely manner.