Missouri Revenue Department’s directive to pay sales taxes stuns arts groups

Missouri lawmakers are taking steps to rein in the Department of Revenue after arts organizations, fitness centers and dance studios in different parts of the state were told that they would have to start paying sales taxes on ticket, tuition and membership fees.

What appears to be an arbitrary interpretation of existing law touched off panic among Kansas City nonprofit arts groups after three theater companies received letters in early March from the Department of Revenue informing them that they now were required to pay sales taxes on single ticket and concession sales.

None of the nonprofits — Starlight Theatre, the Kansas City Repertory Theatre and the Unicorn Theatre — had ever been required to pay sales tax on tickets or concessions.

Brenda Mortensen, Starlight’s vice president of finance, said that if the theater company had to pay sales taxes on single tickets and concessions for the coming season of concerts and Broadway shows, it could add up to more than $500,000.

“We don’t have that money sitting there, nor do we have it in our operational budget,” Mortensen said.

She said any theater faced with such an unexpected tax hike would have only two choices: Eat the cost, or raise ticket prices.

The letters came in early March with no warning and triggered a meeting of most of the city’s nonprofit arts groups to begin formulating a unified response and plot lobbying strategies. The fear was that the letters to the three theater companies, which had applied at about the same time to renew their tax-exempt statuses, represented the opening salvo of a policy that eventually would extend to all nonprofit arts organizations.

Then something equally unexpected happened: A second letter arrived from the department telling the theater companies to disregard the first letter, explaining it had been a mistake.

Department of Revenue officials did not respond to repeated requests for comment. The only explanation for the department’s actions were offered via email by director of communications Michelle Gleba, who wrote that “the terms of a settlement agreement with one entity were inadvertently applied to six nonprofit theater groups. We have reached out to those groups to resolve the issue.”

Gleba said confidentiality laws prohibited her from identifying the “entity” or the other theater groups that received letters. In addition to the three Kansas City companies, the Muny in St. Louis received a letter. Whether other theater companies may have been targets of the Revenue Department is unclear.

Meanwhile, lawmakers have taken steps to spell out the precise limits of what the Revenue Department can demand in sales taxes from organizations.

The state Senate last week passed a bill introduced by Bob Dixon, a Springfield Republican. It now goes to the House, where a similar bill had been sponsored by Rep. Eric Burlison, a Springfield Republican. Dixon said his bill was in response to what appeared to be a new ruling within the Revenue Department that reclassified fitness centers and dance schools as places of “entertainment.” As such, they would have to pay sales taxes on membership fees and tuition.

“It’s very odd,” Dixon said. “It’s like they’re going after some of these people when they’re just trying to follow the law. … We spelled it out in the statute that if an organization is exempt now, it will continue to be under the statute. We are trying to restore a regulation that was changed arbitrarily by the Department of Revenue.”

Dixon said a fitness center in the Springfield area was told that it would have to pay sales taxes going forward as well as for the three previous years. Dixon said his bill also addresses the Revenue Department’s demand that at least one dance studio start paying sales taxes.

“They’ve always been categorized as educational entities,” he said. “We’re not talking about a performance. We’re talking about where a parent would take a child for lessons. They were always exempt. And what (the department) did is target one studio and try to set a precedent. … This is not right.”

Dixon said he works closely with

Missouri Citizens for the Arts

, a nonprofit arts advocacy group, and was concerned about the potential impact on arts organizations.

Dixon said that he read a portion of the current law on the Senate floor “that clearly states that nonprofits are exempt from their single ticket sales. So we just reiterated that and specified that.”

Dixon said the Revenue Department appears to be out of sync with the state’s larger goals.

“It’s absurd that you have a state department that’s essentially got their boot on the neck of a small business or a not-for-profit, and then you have the Department of Economic Development, whose job is to go out and grow jobs,” he said.

Kyna Iman, a governmental affairs consultant for Missouri Citizens for the Arts, said that the language in Dixon’s bill should eliminate any possible misinterpretation in the future.

“I think they’re looking under every rock to find more revenue,” she said. “But they’re misinterpreting the current statute.”

This story was originally published April 7, 2014 at 11:13 PM with the headline "Missouri Revenue Department’s directive to pay sales taxes stuns arts groups."