July 17 (Bloomberg) -- It’s one thing to watch a scantily clad woman twirl around poles. It’s another to pay her to undulate over your lap.
That’s the stance Philadelphia is taking with at least two strip clubs, Club Risque and Cheerleaders. The nation’s fifth-largest city, which taxes the establishments’ entrance fees, is trying to collect levies on lap dances as well.
The city is pressing its case as it hires a revenue collection officer and goes after delinquent property tax, which is fifth-highest among U.S. cities surveyed last month by Pew Charitable Trusts. Mayor Michael Nutter has pledged an extra $28 million to the school district -- which has a $304 million deficit -- from improved collections.
“It’s smart business” to apply the tax code to erotic dancing, said Michael Gillen, director of the tax accounting group at Duane Morris LLP in Philadelphia. “They have to be foolish not to expand their reach.”
New York and other cities also are trying to collect more revenue as they recover from the worst recession since the Great Depression and they are looking in innovative places.
The adult-entertainment industry has waged and lost several taxation battles. New York in October rejected a bid by “Nite Moves,” a strip club, to get a break on the grounds that it provided musical art performances. The Texas Supreme Court three years ago upheld a per-customer tax in nude businesses that serve alcohol.
At issue in Philadelphia is a 5 percent tax that applies to any amusement in the city, including concerts, movies and strip-club entry fees. The city collected $21.9 million in those taxes in the fiscal year that ended in July 2012, documents show.
Now the city says lap dances are distinct amusements and should be taxed, according to George Bochetto, a Philadelphia lawyer representing the two clubs.
Philadelphia sent a $486,483 bill covering lap dances performed at Cheerleaders and charged Club Risque $320,540, according to documents provided by Bochetto. The city is seeking principal, interest and penalties over three years.
It’s not clear how much the city would reap from collecting lap-dance levies from every club, of which there are dozens.
At Club Risque, which is advertising a Christmas in July party next week featuring “naughty elves,” lap dances start at $20 and can cost $200 in a semi-private area. The club already pays the amusement tax on entry fees as high as $15, depending on the day and time, according to the documents.
Bochetto says the city’s approach isn’t fair, arguing that a personal performance doesn’t constitute a separate amusement and shouldn’t be taxed. He’s challenging the city’s tax assessment on behalf of the two clubs.
Bochetto said he will press his clients’ appeal in front of a city tax board next week and said he’ll go to court if needed. In papers filed with the city, he said dancers pay their own taxes and provide their own costumes and props. In exchange for security, the performers give the businesses a percentage of their earnings at the end of each shift.
“The city started saying, ‘OK, we need more money, and here, maybe, is a way we can scare up some more money without having to raise anybody’s taxes’,” Bochetto said.
Mark McDonald, a spokesman for Nutter, wouldn’t say how many strip clubs it’s trying to tax for lap dances.
McDonald also declined to comment on the bills for Cheerleaders and Club Risque.
The city and school district are owed $515.4 million in delinquent taxes and penalties, according to a report last month from the Pew Charitable Trusts, a Philadelphia-based research and public policy group. Pew surveyed the nation’s most populous metropolitan areas and six others that, like Philadelphia, have poverty rates of more than 25 percent.
At Cheerleaders yesterday afternoon, one customer sat at the bar chatting with a dancer in a lacy black top as a woman in a blue G-string gyrated on a stage. Stale smoke hung in the air.
Outside, John Adams, 33, of Philadelphia, a former manager at another strip club in the city, said applying the fees is a “horrible” idea.
“It’s going to be impossible to regulate,” Adams said, adding that prices can vary widely. “Sometimes it’s negotiated. Sometimes, a woman just sits on your lap.”
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