When performers set and collect their own cover charges at a tavern's door, must the tavern collect sales tax on those cover charges?

Plain-English summary

89 Cragg Road Inc. (doing business as Island Cottage) runs a tavern in Rochester whose main business is serving drinks. It lets performers entertain there under a written "statement of understanding." Critically, the deal is arm's-length as to money: the performers set the cover charge, collect it at the door, and keep all of it. The tavern takes none of the money, keeps no records of it, has no financial control, doesn't guarantee any minimum crowd or receipts, and pays the performers nothing. (It will supply a door person to collect if the performers ask, but isn't required to.) The tavern asked whether it has to collect sales tax on those cover charges.

The Department's answer has two parts:

• The cover charge is taxable. A charge for admission is a "cover, minimum, entertainment or other charge" within § 1105(d)(i), which taxes food-and-drink receipts including such charges made to patrons. So the cover charge is subject to sales tax.
• But the performers — not the tavern — are the vendors who must collect it. A "vendor" is the person making the taxable sale (§ 1101(b)(8)(i)(A)). Here the tavern only lets the performers use its premises; the performers decide the charge, collect it, and keep it, and the tavern has no financial control over them. On this specific fact pattern, the entertainers are the vendors responsible for collecting the tax under § 1105(d)(i) — not the tavern.

What this means for you

A door cover charge is taxable — someone has to collect it

Don't assume cover, minimum or entertainment charges are outside sales tax. Section 1105(d)(i) folds them into the taxable food-and-drink receipts. The only question here was who collects, not whether tax is due.

Who collects turns on control of the money, not on whose building it is

The tavern escaped the collection duty because the performers set, collected, and kept the charge with no financial involvement by the venue. Flip any of those facts — the venue setting or sharing the charge, running it through its books, guaranteeing pay — and the venue can become the vendor. The substance of the money arrangement controls.

Paper it carefully if you want this result

Island Cottage's outcome rested on a clear written understanding and a genuine hands-off money arrangement. A venue that wants the performers to be the vendors should make sure the reality (and the documentation) shows the performers truly own the cover-charge revenue and the venue takes no cut and keeps no records of it.

Common questions

Q: Are cover charges subject to New York sales tax?
A: Yes. A cover, minimum, entertainment or other charge to patrons is taxable under § 1105(d)(i).

Q: Does the tavern have to collect the tax on performer-run cover charges?
A: Not on these facts. Because the performers set, collect and keep the charges with no tavern control, the performers are the vendors who must collect the tax.

Q: When would the venue be on the hook instead?
A: If the venue set or shared the charge, ran it through its books, or otherwise had financial control or interest — then it would be the vendor under § 1101(b)(8)(i)(A).

Citations and references

Statutes:

• Tax Law § 1105(d)(i) — tax on receipts from food and drink sold by taverns, including any cover, minimum, entertainment or other charge to patrons
• Tax Law § 1101(b)(8)(i)(A) — "vendor" is a person making taxable sales of property or services

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1991.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a91_22s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-91 (22)S
Sales Tax
February 22, 1991

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S900620B

On June 19, 1990 a Petition for Advisory Opinion was received from 89 Cragg Road Inc.
DBA Island Cottage, 953 Edgemere Drive, Rochester, New York 14612.
The issue raised by Petitioner, 89 Cragg Road Inc. DBA Island Cottage, is whether it is
responsible for the collection of sales tax on receipts from cover charges collected by entertainers
from customers at the door of the establishment.
Petitioner owns and operates a tavern at 953 Edgemere Drive, Rochester, New York 14612.
Petitioners principal business consists of selling and serving beverages. Petitioner, after executing
a written statement of understanding, allows various performers to entertain at the tavern. Petitioner
treats this arrangement as simply providing a place for the entertainers to perform. Petitioner does
not enter into any monetary transactions with the entertainers. As stated in the written statement of
understanding, the entertainers are responsible for setting any fees. Petitioner does not set a
maximum or minimum fee. The entertainers are responsible for collecting any fees. Petitioner will
supply an employee to collect money at the door if the entertainers so desire but this is not required
by the Petitioner.
No accounting of the money collected by the entertainers is made by Petitioner. Further, no
accounting of the collections is required by Petitioner to be made by the entertainers. No money from
these collections is ever deposited into the accounts of Petitioner. No entries onto the books of
Petitioner is ever made. Petitioner never includes any of the collected money in any financial reports
made to governmental agencies, for internal purposes or to any other interested parties (i.e.:
creditors). The entertainers set the level of charges to be assessed. Petitioner never guarantees any
minimum number of customers nor does Petitioner guarantee a minimum amount of receipts.
Petitioner never pays the entertainers from any of its own funds. Petitioner does not pay the
entertainers a substituted amount if receipts are low. The entertainers keep all receipts and do not pay
Petitioner a percentage of the receipts. Petitioner does not collect a flat fee from the entertainers.
There is no compensation or commissions paid to Petitioner from the entertainers. The statement of
understanding does not require the entertainers to entertain on any particular date. It is not a contract
for personal services. It does not provide for any compensation to the entertainers.
Petitioner never receives, collects or reports any cover, minimum or entertainment charges
from the customers. Petitioner makes it clear through the statement of understanding with the
entertainers that Petitioner does not treat itself as the vendor of the entertainment. Petitioner has no
direct interest in the entertainment fee charged by the entertainers. The entertainers are never an

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TSB-A-91 (22)S
Sales Tax
February 22, 1991

expense to Petitioner. Petitioner never receives income from the fees charged by the entertainers.
Tax Law section 1105(d)(i) of the Tax Law in part imposes sales tax upon:
The receipts from every sale of beer, wine or other alcoholic
beverages or any other drink of any nature, or from every sale of food
and drink of any nature or of food alone, when sold in or by
restaurants, taverns or other establishments in this state, or by
caterers, including in the amount of such receipts any cover,
minimum, entertainment or other charge made to patrons or
customers. . . .
The charge imposed upon patrons for admission to Petitioner's tavern constituted a "cover,
minimum, entertainment or other charge" within the meaning of Tax Law section 1105(d)(i). As a
result, such charges are subject to sales and use taxes.
Section 1101(b)(8)(i)(A) includes within the meaning of "vendor," "A person making sales
of tangible personal property or services the receipts from which are taxed by this article."
Petitioner's agreement with the entertainers is solely to allow them to use its premises. The
agreement provides that the entertainers will perform in exchange for the cover charge only. The
entertainers decide the amount of the cover charge and provide someone to collect it. Petitioner does
not have any financial control over the entertainers whatsoever. Under the specific fact pattern
presented by Petitioner, the entertainers and not Petitioner are vendors within the meaning of Section
1101(b)(8)(i)(A) of the Tax Law responsible for collecting the sales tax imposed under Section
1105(d)(i) of the Tax Law.

DATED: February 22, 1991

s/PAUL B. COBURN
Deputy Director
Taxpayer Services Division

NOTE: The opinions expressed in Advisory Opinions
are limited to the facts set forth therein.