Are admission tickets to a music venue exempt as dramatic or musical arts, or taxable as a cabaret because it serves food and drink?

Plain-English summary

Tralfamadore Cafe, Inc. runs a 350-seat live-entertainment venue in downtown Buffalo, presenting nationally known performers (Melba Moore, Kris Kristofferson, Phoebe Snow, Stan Getz, Peter Nero, the Tommy Dorsey Orchestra). It sells one-show tickets and argued that its admission receipts (which don't include food or drink) should be exempt as dramatic or musical arts admissions. It stressed that the show is the only entertainment, ticket ads mention only the performers, food is optional, and there's no minimum charge.

The Department disagreed — Tralfamadore is a taxable cabaret, and all its admission charges are taxable.

• Two competing tax rules. The amusement-admission tax (Tax Law 1105(f)(1)) excepts admissions to "dramatic or musical arts performances" — a live performance at a theatre, concert hall, or other place of assembly (1101(d)(5)). But a separate tax (Tax Law 1105(f)(3)) reaches all charges — admission, refreshment, service, or merchandise — of a "roof garden, cabaret or other similar place" (1101(d)(4), (12)).
• What makes a place a "cabaret." A cabaret is any place where entertainment is afforded to patrons in connection with the serving or selling of food, refreshments, or merchandise (20 NYCRR 527.12(b)(2)(ii)). This definition comes from the former federal cabaret excise tax, under which it didn't matter that buying food or drink wasn't required or that customers came mainly for the show.
• The "merely incidental" test. Congress later excluded places where food/drink sales were "merely incidental" to the entertainment. The key factor the federal courts used is the ratio of food-and-beverage revenue to gross revenue — and courts held that percentages around 45–50% are more than "merely incidental" (Dance Town, Landau, Billen, Shutter).
• The facts here. Tralfamadore's food and beverage receipts exceed 45% of total receipts; it holds itself out as a "cafe," keeps a bar in the lobby, and sells refreshments both before and after performances. So the food/drink sales are not merely incidental.
• Result. Tralfamadore is a "roof garden, cabaret or other similar place," and all of its admission charges are taxable under Tax Law 1105(f)(3).

What this means for you

Serving food and drink alongside a show can convert exempt "arts" tickets into taxable cabaret charges. The dramatic/musical-arts exception is aimed at theatres and concert halls — not at venues where eating and drinking accompany the entertainment.

The revenue ratio is the pivotal fact. If your food and beverage sales are a substantial share of receipts — the cases treat roughly 45% and up as more than incidental — expect cabaret treatment, and note that then the tax reaches everything, including admission.

How you present the venue matters, but doesn't control. Advertising only the performers didn't save Tralfamadore, because it called itself a "cafe," ran a bar, and sold refreshments around the shows. The substance of the operation — entertainment tied to food/drink service — governs.

Common questions

Q: We host live music but sell tickets separately from food. Are the tickets exempt arts admissions?
A: Not if food and drink service is more than merely incidental to the entertainment. Where food/beverage revenue is a large share of receipts (the cases point to ~45%+), the venue is a cabaret and all charges, including admission, are taxable under 1105(f)(3).

Q: Does it help that buying food isn't required and there's no minimum?
A: No. Under the cabaret definition, it doesn't matter that food or drink isn't required or that patrons come mainly for the show. What matters is that entertainment is furnished in connection with food/refreshment service.

Q: How is the food-vs-entertainment line drawn?
A: By the ratio of food-and-beverage revenue to gross revenue. Percentages in the mid-40s and above have been held more than "merely incidental," making the place a cabaret.

Citations and references

Tax Law:

• 1105(f)(1) — taxes amusement admissions but excepts dramatic or musical arts performances
• 1105(f)(3) — taxes the charges (admission, refreshment, service, merchandise) of a roof garden, cabaret or similar place
• 1101(d)(4) — "charge of a roof garden, cabaret or other similar place"
• 1101(d)(5) — "dramatic or musical arts admission charge"
• 1101(d)(12) — "roof garden, cabaret or other similar place" (furnishes a public performance for profit)

Regulation:

• 20 NYCRR 527.12(b)(2)(ii) — cabaret: any place affording entertainment to patrons in connection with the serving or selling of food, refreshments, or merchandise

Authorities referenced:

• Former federal cabaret excise tax, IRC 4231, 4232, and the "merely incidental" amendment
• Avalon Amusement Corp. v. United States, 165 F.2d 653; Geer v. Birmingham, 185 F.2d 82
• Roberto v. United States, 357 F. Supp. 862, aff'd 518 F.2d 1109; Dance Town U.S.A., Inc. v. United States, 319 F. Supp. 634 (45.1%); Landau v. Riddell, 255 F.2d 252 (47.1%); Billen v. United States, 273 F.2d 667 (50%); Shutter v. United States, 406 F.2d 906 (47%)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1985.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a85_42s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-85(42)S
Sales Tax
September 9, 1985

STATE OF NEW YORK
STATE TAX COMMISSION
ADVISORY OPINION

PETITION NO. S841109C

On November 9, 1984 a Petition for Advisory Opinion was received from Tralfamadore
Cafe, Inc., 701 Seneca Street, Buffalo, New York 14210.
The issue raised is whether the exception from the sales tax for admissions provided by Tax
Law §1105(f)(1) for dramatic or musical arts performances applies to Petitioner's receipts from ticket
sales to patrons (which amounts do not include charges for food or beverages), or whether such
receipts represent charges of a roof garden, cabaret or other similar place, taxable under Section
1105(f)(3) of the Tax Law.
Petitioner operates an establishment for the entertainment of patrons by nationally known
entertainers, vocalists, and bands on the second floor of 100 Theatre Place in downtown Buffalo.
Among the entertainers who have appeared there are: Melba Moore, Kris Kristofferson, Phoebe
Snow, Stan Getz, Peter Nero and the Tommy Dorsey Orchestra.
Petitioner describes its business operations as follows: The premises provide seats for 350
people at tables on three levels, allowing unobstructed view of the stage from every seat. There is
permanent stage lighting and dressing rooms, a shower, and a sound and light room are located
backstage.
Tickets are sold at a box office located on the same floor, or at Ticketron outlets throughout
Western New York. Tickets can be ordered well in advance of a performance and reserved seating
is available. Tickets, valid for one show only, carry the name of the entertainer and the date and time
of the performance.
The cafe is open Tuesdays through Sundays. On some nights there may be two performances
and each show is limited to about two hours. The cafe is closed on nights when no entertainer is
booked. Doors open an hour before the first show and close 30 minutes after the last performance.
Petitioner states that advertisements of future performances at the box office and in local
newspapers refers only to entertainers and not to the availability of food and beverages. However,
it is noted that Petitioner holds itself out to be a "cafe" and that the common understanding of that
term encompasses an establishment which serves food and beverages. A bar is located in the lobby
of the cafe for the use of its patrons. Additionally, light snack food may be ordered by cafe patrons
from the Tralfamadore Restaurant on the first floor of the building for consumption in the cafe
during performances. Food purchase are optional and there is no minimum table charge. However,
receipts from the sale of food and beverages are in excess of 45% of Petitioner's total receipts.

RODERICK G. W. CHU, COMMISSIONER
TP-8 (3/83)

GABRIEL B. DiCERBO, DEPUTY COMMISSIONER
FRANK J. PUCCIA, DIRECTOR

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TSB-A-85(42)S
Sales Tax
September 9, 1985
Petitioner emphasizes that the show is the only entertainment provided (there is no dancing),
and that entertainment revenues consistently exceed sales of food and beverages. Petitioner states
it has correctly reported all sales taxes due on sales of refreshments.
Section 1105(f)(1) of the Tax Law imposes sales tax on "Any admission charge ... to or for
the use of any place of amusement in the state, except charges for admission to ... dramatic or
musical arts performances ..."
Section 1101(d)(5) of the Tax Law defines "dramatic or musical arts admission charge" as:
"Any admission charge paid for admission to a theatre, opera house, concert hall or other hall or
place of assembly for a live dramatic, choreographic or musical performance."
Section 1105(f)(3) of the Tax Law imposes a sales tax on:
"The amount paid as charges of a roof garden, cabaret or other similar place in the state."
Pursuant to section 1101(d)(4) of the Tax Law, the phrase "charge of a roof garden, cabaret
or other similar place" means:
"Any charge made for admission, refreshment, service, or merchandise at a roof garden,
cabaret or other similar place."
Section 1101(d)(12) of the Tax Law defines the terms "roof garden, cabaret or other similar
place" as:
"Any roof garden, cabaret or other similar place which furnishes a public performance
for profit."
The Sales and Use Tax Regulations further define the terms "roof garden, cabaret or similar
place" as follows:
"Any room in a hotel, restaurant, hall or other place where music and dancing
privileges or any entertainment, are afforded the patrons in connection with the
serving or selling of food, refreshments or merchandise." (20 NYCRR
527.12(b)(2)(ii)).
The definition of "roof garden, cabaret or other similar place" found in the sales and use tax
regulations is derived from the definition contained in the former federal excise tax on cabaret
charges. (Internal Revenue Code sections 4231, 4232). That definition included establishments
where food or drink was served to patrons while they were being provided with entertainment. It did
not matter, for purposes of the federal definition, that the purchase of food or drink was not required
or that customers were primarily interested in the entertainment offered, rather than the purchase of
food or drink. Avalon Amusement Corporation v. United States, 165 F 2d 653; Geer v. Birmingham,
185 F2d 82. However section 4232 of the Internal Revenue Code was amended to exclude from the
federal excise tax those establishments where the sale of food and refreshments was "merely

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TSB-A-85(42)S
Sales Tax
September 9, 1985
incidental" to the entertainment offered. In construing this amendment, the federal courts have stated
that the principal factor to be considered in determining whether the sale of food and refreshments
is "merely incidental" is the ratio of revenue derived from the sale of food and refreshments to gross
revenue. Roberto v. United States 357 F. Supp. 862, aff'd 518 F. 2d 1109; Dance Town U.S.A., Inc.
v. United States, 319 F. Supp. 634. In this regard, several courts have held that comparable
percentages of revenue from the sale of food and beverages are more than "merely incidental".
(Dance Town, U.S.A., Inc. v. United States, supra - 45.1% of revenue from the sale of food and
beverages; Landau v. Riddell, 255 F. 2d 252 47.1%; Billen v. United States 273 F. 2d 667 - 50%;
Shutter v. United States 406 F. 2d 906 - 47%).
Furthermore, the fact that Petitioner holds its establishment out to the public, by virtue of its
name, as a place where food and beverages are sold to patrons and the fact that food and beverages
are sold both one hour before and one-half hour after performances are further evidence that the sale
of food and beverages is not "merely incidental".
Clearly, Petitioner is operating an establishment where entertainment is afforded to patrons
in connection with the serving or selling of food or refreshments. Furthermore, the selling of food
and refreshments is more than merely incidental to the providing of entertainment since receipts from
such sales amount to over 45% of Petitioner's total receipts.
Accordingly, it must be concluded that Petitioner's establishment is a "roof garden, cabaret
or other similar place" within the meaning and intent of section 1105(f)(3) of the Tax Law and
section 527.12(b)(2)(ii) of the sales and use tax regulations. All of the charges for admission to
Petitioner's establishment are subject to the tax imposed by section 1105(f)(3) of the Tax Law.

DATED: August 19, 1985

s/FRANK J. PUCCIA
Director
Technical Services Bureau

NOTE: The opinions expressed tn Advisory Opinions
are limited to the facts set forth herein.