Is the money a customer pays directly to a table/couch dancer at a topless club subject to Texas sales tax as an amusement service?

Subject

Topless Club — Transaction Between Table Or Couch Dancer And Customer Vs. Admission To Amusement Service

Plain-English summary

A Tyler-area sales tax auditor asked the Comptroller's Tax Policy Division whether money customers pay directly to a table dancer or couch dancer at a topless club is taxable. The club collected the cash in a lock box, recorded it, and later paid the dancer after taking a percentage.

The performance is an amusement, but the payment isn't a taxable admission charge. The Comptroller agreed that a table dance or couch dance by a topless dancer is an amusement or entertainment. But under Tax Code Section 151.005(3), a taxable "sale" involving an amusement service requires the transfer of an admission document, the collection of an admission fee, dues, or a similar membership-type charge -- not merely the performance of the amusement itself. Because the voluntary payment a customer hands to the dancer is not a sale of an admission to the amusement service, it falls outside the definition of a taxable sale under Section 151.0028 and 151.005(3).

The club's handling of the cash doesn't change the analysis. The letter draws a direct comparison to an earlier, previously addressed situation involving credit cards: clubs process customer credit card charges so dancers can be paid, and even though the club keeps a percentage, the club isn't required to remit sales tax on that percentage. The ruling extends the same logic to cash handled through a lock box -- the mechanics of collecting and disbursing the money (lock box, recordkeeping, the club's cut) don't convert the underlying dancer-customer transaction into a taxable sale.

Cover charges are different. The ruling is careful to distinguish the dancer's tip/fee from a cover charge a customer pays to enter the club. A cover charge is a sale of an admission to an amusement service and is taxable; the payment made directly to the dancer for an individual dance is not.

What this means for you

Topless club and adult-entertainment venue operators

Money that customers pay directly to a dancer for a table dance or couch dance is not subject to sales tax, even if the club collects, records, and processes that money (for example, through a lock box) before passing it to the dancer, and even if the club retains a percentage as its fee for that service. However, a cover charge or admission fee the club itself charges to enter the venue is a taxable sale of admission to an amusement service and should be taxed accordingly.

Accountants and tax professionals advising clubs

When structuring or auditing a club's sales tax reporting, distinguish between (1) admission/cover charges collected by the club, which are taxable amusement-service sales under Section 151.005(3), and (2) per-dance payments from customer to dancer, which are not taxable regardless of whether the club acts as an intermediary for collecting or disbursing the cash. The method of collection (cash lock box vs. credit card processing) does not affect this distinction.

Auditors reviewing club sales tax records

A club's percentage/commission taken from a dancer's receipts is not itself subject to sales tax remittance, because the underlying dancer-customer transaction was never a taxable sale of an admission in the first place.

Common questions

Q: Is a table dance or couch dance itself considered an amusement or entertainment service?
A: Yes -- the Comptroller states there is no question that it is an amusement or entertainment.

Q: If it's an amusement, why isn't it taxed?
A: Because a taxable sale involving an amusement service requires the sale of an admission (a ticket, admission fee, dues, or similar charge) under Tax Code Section 151.005(3). The voluntary payment a customer makes to a dancer is not a sale of an admission to the amusement service, so it doesn't meet that definition.

Q: Does it matter that the club collects the money in a lock box and takes a percentage before paying the dancer?
A: No. The ruling says that handling arrangement -- collecting, recording, and disbursing the money, and keeping a percentage -- does not make the original dancer-customer transaction taxable.

Q: Is this different from how credit card payments to dancers were treated?
A: No, the ruling says this issue was previously addressed for credit cards: clubs process customer credit card charges so dancers can be paid, and the club isn't required to remit sales tax on the percentage it keeps. The same result applies to cash handled through a lock box.

Q: Is a cover charge to enter the club taxable?
A: Yes. The ruling explicitly distinguishes the cover charge a customer pays to enter the club (a taxable sale of admission to an amusement service) from the payment made directly to the dancer (not taxable).

Citations and references

Statutes and rules:

• Tex. Tax Code Section 151.005(3) (definition of a taxable sale/purchase, including sale of an admission to an amusement service)
• Tex. Tax Code Section 151.0028 (definition of amusement services)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9611765L

Original ruling text

DATE: November 27, 1996

TO: Ron E. Marsh, Tyler Audit

FROM: David Somerville, Tax Policy

SUBJECT: Taxability of Monies Collected by Club

There is no question that a table dance/couch dance by
a topless dancer is an amusement or entertainment. However, that does not make
it a taxable transaction between the dancer and the customer. Texas Tax Code
Section 151.005(3) states that a sale or purchase includes "the performance of
a taxable service or, in the case of an amusement service, a transfer of title
to or possession of a ticket or other admission document, the collection of an
admission fee, whether by individual performance, subscription series, or
membership privilege, the collection of dues or a fee, charge, or assessment,
including an initiation fee, by a club or organization for membership or a
special privilege, status, or membership classification in the club or
organization, or the use of a coin-operated machine."

Therefore, the performance of an amusement service as
defined in Section 151.0028 of the Tax Code is not taxable unless there is the
requisite sale of an admission to the amusement service. The Comptroller's
office has never taxed the voluntary transaction between a dancer and a
customer as a sale of an admission to amusement services.

If sales tax is not imposed on the transaction between
the dancer and the customer, then the fact that the money collected by the
dancer is put in a lock box, recorded by the club, and then disbursed by the
club to the dancer after the club takes a percentage does not make the original
transaction between the dancer and the customer taxable. This issue has
previously been addressed. Clubs process customer credit cards so dancers can
get paid for their table dances and even though a club keeps a percentage of
the dancer's receipts, the club is not required to remit sales tax on its
percentage of the receipts. The handling of the dancer's receipts from credit
card purchases is done as convenience provided by the club. Although your
situation involves cash and lock boxes rather than credit cards, sales tax is
still not imposed on the voluntary transaction between the dancer and the
customer. Unlike the cover charge paid by a customer to enter the club, the
transaction between the dancer and the customer is not a sale of an admission
to an amusement service.