Jan 25, 2016
From KPMG TaxWatch
Recently, the Missouri Supreme Court considered whether fees charged for dance classes were subject to sales tax as fees paid to a place of amusement, entertainment, or recreation. The taxpayer at issue, a dance studio, charged fees for dance classes in which participants, ranging from young children to adults, were instructed on various styles of dance. Missouri imposes a sales tax on fees paid to any place of “amusement, entertainment or recreation.” On audit, the Missouri Department of Revenue determined that the dance studio constituted a place of amusement and assessed tax on the dance class fees. After the assessment was upheld at the administrative hearing level, the taxpayer appealed to the Missouri Supreme Court.
The taxpayer argued before the court that it should not be considered a place of amusement because the primary purpose of the dance studio is to teach students how to dance, not to amuse, entertain, or provide recreation. However, according to the court, this “primary purpose test” had already been rejected because many activities can be both educational and amusing or recreational at the same time, much like the taxpayer’s dance lessons. Instead, the court had adopted a de minimus test, holding that a business is a place of amusement if “amusement, entertainment or recreation” comprise more than a de minimus portion of business activities. Under this “de minimus test”, three factors are considered: (1) the manner in which the place holds itself out to the public; (2) the amount of revenue generated by amusement or recreational activities at the place; and (3) the pervasiveness of the amusement or recreational activities at the place. The court found that the taxpayer held itself out as a place of amusement because its website and promotional materials consistently emphasized the fun and enjoyment that participants experience when taking its dance classes. Turning to the second and third factors, the court first determined that the dance classes constituted “amusement” despite their dual nature as both an educational and recreational activity. The court then found that the second and third factors were met since dance classes accounted for nearly two-thirds of the taxpayer’s income and were the most pervasive of the taxpayer’s business activities for the relevant years. For more information on Miss Dianna’s School of Dance, Inc. v. Director of Revenue, please contact Andrea Turner at 816-802-5236.
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The following information is not intended to be "written advice concerning one or more federal tax matters" subject to the requirements of section 10.37(a)(2) of Treasury Department Circular 230.
The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser.