The New York State Tax Appeals Tribunal has affirmed the decision of an Administrative Law Judge that admission charges to walk through haunted house-type attractions, featuring actors and special effects equipment, were subject to sales tax as charges for access to a “place of amusement” and were not nontaxable charges for the use of “amusement devices.” Matter of Ronald J. Doherty, Jr. d/b/a Eerie Productions, DTA No. 826909 (N.Y.S. Tax App. Trib., May 29, 2019).
Facts and Background. Petitioner Ronald Doherty, Jr., doing business as Eerie Productions, operates a haunted attraction called “Frightworld” in Buffalo, New York. Frightworld contains a common area, which patrons may enter for free, and five separately themed haunted house attractions, for which patrons were required to pay a fee of $23 to enter during the 2010 through 2013 period in issue. Each attraction was constructed of theatrical flats enclosed by temporary walls, and each contained props (e.g., a dentist’s drill, a chainsaw, a CO2 gun) and electric and pneumatic systems that operated the special effects and animation (e.g., animated snakes, a laser hallway designed to look like water with an airbag effect that squeezed around patrons’ legs, a gravity tilt bridge inside a cave, vortex tunnels and simulated ceiling drops). Actors were hired to “scare forward” the patrons to prompt them to move through each of the five attractions, and employee handbooks stated such descriptions as patrons “want to see real live vampires and graveyard ghouls ... [and] be startled by killer clowns” and that “Frightworld is a tightly choreographed show.”
In a previous audit, sales tax on the charges to enter the five attractions had been asserted by the Department, along with additional tax on expense purchases, and the audit was resolved without any agreement regarding later years. During the course of that audit, Mr. Doherty requested and received Advisory Opinion, TSB-A-10(11)S, dated March 26, 2010 (the “2010 Advisory Opinion”), concluding that sales tax was due on the admission charges. During the audit for the period in issue, Mr. Doherty requested another Advisory Opinion, contending that the facts submitted in connection with the 2010 Advisory Opinion were inaccurate.
A second Advisory Opinion, TSB-A-14(29)S, was issued on August 21, 2014, again concluding that the admission charges were taxable.
ALJ Determination. An ALJ found that the admission charges were taxable, distinguishing the haunted attractions from amusement devices such as automatic phonographs and bowling games that have been held not to constitute places of amusement. The ALJ also refused to abate penalties, noting that the petitioner had requested and received the 2010 Advisory Opinion advising that the Department believed sales tax was due, yet did not begin collecting tax.
Tribunal Decision. The Tribunal affirmed the ALJ’s decision. Mr. Doherty argued that the statute was ambiguous, citing Fairland Amusements, Inc. v. State Tax Commission, 66 N.Y.2d 932 (1985), in which the Court of Appeals, reversing the Appellate Division, found the statute to be ambiguous and held that tickets for individual carnival rides were not taxable. The Tribunal rejected that argument, holding that any ambiguity relevant to this case had in fact been resolved by Fairland, and that the only question was whether the charges were for entering a location where amusement facilities are found, or instead were charges to use amusement devices.
While acknowledging that rides such as Ferris wheels, merry-go-rounds and coin-operated games have been held by the New York courts to be nontaxable amusement devices and not taxable places of amusement, the Tribunal distinguished the haunted attractions, finding that patrons were paying to enter haunted attractions and be entertained by actors hired to put on a show, and thus were much more like the “peep-show” booths that had been held by the Court of Appeals to be places of amusement and not amusement devices in 1605 Book Center, Inc. v. Tax Appeals Trib., 83 N.Y.2d 240 (1994). The Tribunal also decidedly rejected Mr. Doherty’s argument that the attractions were designed to move patrons through the attraction quickly, saying “it makes no sense to claim that patrons enter an attraction just to be pushed out of it.” The Tribunal also sustained the imposition of penalties for the reasons stated by the ALJ.
The issue of whether a charge is for a taxable entry to a “place of amusement” or for a nontaxable amusement device such as a carnival ride or coin-operated game has recurred over the years, and has resulted in decisions that could arguably support the finding of nontaxability, depending upon the facts of a given case and how close the attraction actually is to the types of attractions found to be nontaxable, such as the rides in Fairland Amusements or the automatic phonographs and bowling games found nontaxable in Bathrick Enterprises, Inc. v. Murphy, 27 A.D.2d 215 (3d Dep’t, 1967), aff’d, 23 N.Y.2d 664 (1968). Here, however, both the ALJ and the Tribunal found that patrons were paying not for a ride – all patrons walked through the attractions themselves – or for use of a device, but rather for the experience of being scared and entertained by live actors employing props and animated devices.
In addition, it is always important to remember when requesting an Advisory Opinion that an adverse opinion may be issued, and that while a taxpayer is always free to challenge that opinion – which is, after all, nothing but the Department’s position – that disregard can carry the additional burden of penalties if the Department’s position is later upheld.