New state tax hits entertainment venues
When the clock struck midnight this past New Year’s Eve, a new North Carolina state tax took effect.
“This isn’t a tax reform, it’s a tax shift,” said Rep. Joe Sam Queen, D-Waynesville. “It’s just part of the shift by the Republican legislature on revenues. They cut taxes on big business, then entertainment, tourism and nonprofits, who do so much with so little, and are the engine of our economy, get taxed while those huge tax breaks are given to those who contribute to the call.”
The 4.75 percent tax, known as a privilege tax or admission charge, will now be added to any live performance or other live event, motion pictures or films, a museum or cultural site, garden, exhibit, show, guided tour or similar attraction. These listed items are considered by the state as a service, and with that, should be taxed in the eyes of the legislature.
“It is simply an added burden to charities,” said Steve Lloyd, executive director of the Haywood Arts Regional Theatre. “In the meantime, the legislature has cut funding support. Given the role the arts play in growing the economy, attracting business and contributing to the quality of life, this is regressive.”
Rep. Queen said he did not support the tax when it was brought up for a vote. He noted the money collected wouldn’t be worth the hardships now put upon entertainment venues and small business owners.
“The tax is hard to collect and inconsistent,” Queen said. “The [Republicans] say taxation is bad for business, well it’s particularly bad for the entertainment business. It’s not the small folks in the entertainment and the arts getting these tax breaks — it’s big business.”
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Entertainment Expenses
With the new tax increase, there are plenty of complaints and groans echoing through the mountains of Western North Carolina. For several years now, profit margins have already been slim due to the lingering effects of the economic recession, and the mere fact more Americans don’t have as much of a disposable income anymore for entertainment endeavors.
“I have to pay it. I don’t like it, and you get nothing for it, but what are you going to do?” said Kyle Edwards, owner of The Stompin’ Ground in Maggie Valley.
Edwards said he hasn’t changed his prices in an effort to not deter folks from coming through the door. But, with that, he’ll be paying more out of his pocket to cover the tax.
“Business hasn’t been very good lately, pretty average for this time of year,” he said. “If it gets much worse, I don’t know what will happen. This will affect tourism. It’ll get less and less. The economy nationwide is so bad, no jobs out there, which means no money for vacations.”
Down the road at the Maggie Valley Opry House, home to legendary banjoist Raymond Fairchild, his wife, co-owner Shirley Fairchild, is worried what the future will hold for his longtime beloved business.
“Right now, we have not increased our ticket prices of $12 due to the slow tourist turnout so far this year, but will have to before the season’s over,” Fairchild said. “The tax increase has put another dent in our profit along with having to pay the music licensing companies SESAC, ASCAP and BMI. People are being taxed out of business, but we can survive this, and I am determined to do so.”
The tax will also affect the out-of-the-gate success of new businesses. After years of dormancy, The Strand Theatre (now The Strand at 38 Main) in downtown Waynesville was recently renovated and reopened, where it now showcases vintage/blockbuster films and regional music acts. The business decided to pay the tax out-of-pocket, making their profit margins slimmer, all in an effort to not raise prices.
“The additional burden of the ticket sales tax is another drain during the difficult start-up period, especially because attendance at events has been slow to pick up,” said co-owner Rodney Conard. “It was very important to us to make ticket prices affordable for a fun night out on the town; The Strand has absorbed the additional cost of the tax to keep ticket prices low. The reinstated tax is certainly a hurdle, but ultimately The Strand will thrive or fail depending on the enjoyment and attendance of the community.”
That out-of-pocket will also come into play for the Water’n Hole Bar & Grill in Waynesville. As a band cover charge at the door now warrants a tax, the bar, which occasionally charges a small fee for live music, will play by the rules, even if the parameters and accountability factors seem fuzzy.
“I’m not sure exactly how they will [collect the tax]. It depends on how they will try to implement the tax, since it’s usually cash only for extremely small businesses that have music,” said co-owner Becky Robinson. “I include any door money collected in my sales for the night already, so hopefully it won’t affect me. It will just depend on how they want us to pay the tax. I could see how this tax hike could really affect the small arts. Sometimes it is hard to get people to participate in those activities, and higher prices definitely won’t help.”
Even for larger, more successful and profitable venues, the entertainment tax will still make noticeable changes to how the public will respond and how the business itself will properly market and adjust to the situation.
“Any time you have to roll out something new or add a step to a process that you have been doing for years, it is tough. Our patrons have never paid an admission tax and it has raised more questions than anything,” said Paul Garner, general manager for the Smoky Mountain Center for the Performing Arts in Franklin. “As of January 1, we started adding the mandated admission tax to the face value of our tickets. We have not seen a huge pushback from our patrons, and we are thankful for that. Many other states have been paying this tax for years and it was only a matter of time before North Carolina introduced this tax law.”
Keys To Survival
But, there are certain exemptions out there with the new tax. In the bill, exemptions can be made for events held at an elementary school, secondary school or sponsored by a school; a commercial agricultural fair; a festival or other recreational or entertainment activity that lasts no more than seven consecutive days and is sponsored by a nonprofit; a youth athletic contest sponsored by a nonprofit; and a state-funded attraction.
“We will have to add it to all ticket purchases. Nonprofit organizations are eligible to apply to get back sales tax they pay. Most of us have never done that but most of the arts organizations are now planning to start,” said Lloyd, with HART being a nonprofit.
So what does this mean for Folkmoot USA, known as North Carolina’s International Festival and a key economic driving force for Haywood County and beyond?
“All of us at Folkmoot USA are very concerned about the tax increase, especially as it can hurt all nonprofits that host any kind of ticketed event. Festival ticket sales are about a third of our annual budget, and we cannot afford to lose ticket buyers due to this tax,” said Karen Babcock, executive director of Folkmoot.
To stay ahead of the new tax, Folkmoot decided to sell tickets for 2014 earlier than normal, offering them for purchase last year up until Dec. 31, 2013. That move prevented the festival from losing money on certain ticket sales. But, that measure can only work for so long.
“In 2015, we will be forced to add the tax to all ticket sales,” Babcock said. “[For 2014], we are offering free admission to children 12 and under for most ticketed performances. We hope this will help our audiences and keep Folkmoot performances affordable, despite the new tax.”
But, until the new tax pans out and the true effects are visible, entertainment venues and small business owners are hoping for the best, yet preparing for the worst. As of press time, the state legislature is searching for more exemptions — like county fairs — for the tax.
“I’m going to do my best to get it taken off of county fairs and support to take it off of other nonprofits,” Queen said. “If we ever get back the majority in the legislature, I hope to take it off of all venues.”
