In April 2010, Washington State’s Legislature changed the definition of its software royalty tax and effectively granted amnesty to Microsoft, helping the company lock up $1.51 billion in savings from its thirteen-year Nevada tax dodge – and more than $100 million annually each year into the future.

This is also when the state’s Department of Revenue began reinterpreting an obscure decades old tax on “the opportunity to dance” selectively auditing night clubs and dance clubs around the city and aggressively targeting them for back taxes.

The Century Ballroom, a popular Seattle dance club, was assessed $250,000 and is holding ongoing fundraisers to help pay its tax bill. Other popular clubs face tax bills of $30,000 and even $200,000:

The “Opportunity to Dance” is not in any law. It is only the DoR’s interpretation of the law in the Department’s rules. It is also impossible to clearly define what dance is, let alone what the opportunity to do so is. The DoR itself has acknowledged this.

From the time Microsoft opened its Nevada office until 2010, the company earned more than $509 billion – between 1/3 and 1/2 of that from software licensing. The Department of Revenue’s decision not to challenge the company’s Nevada accounting has contributed to repeated biennial deficits between $1 and $2 billion dollars and $4 billion in cuts to K-12 and Higher education. Yet, the state is using its resources to aggressively target the heart of Seattle’s music scene with bizarre tax legislation.

KUOW reports:

It works like this: If the state believes that you give your patrons the opportunity to dance, then you pay the tax even when people don’t dance. That’s according to Mike Gowrylow, with the Department of Revenue. Gowrylow: “You could have somebody go into a nightclub, or a bar, or tavern, and they pay cover charges. Unless you followed every person around, you wouldn’t know if they actually danced or not, so the only simple way we could have of defining this is if you give them the opportunity to dance, then the tax applies.”

It gets better:

Gowrylow says auditors search the Internet to find out whether people dance at specific clubs. One clubowner reports an auditor told him: “You have the opportunity to dance, and we verified it by 8 or 10 different references on Yelp.” – Dance Tax Causes Confusion Among Seattle Venues

From The Stranger:

“My auditor… came in with an obituary of a girl who committed suicide,” says another club owner. “When I argued that we aren’t primarily a dance club—we have ‘No Dancing’ signs up everywhere—she flashed this obit that said the girl liked to dance at [our club]. The auditor said, ‘I know this is ridiculous, but I have to do this.'”

Also from KUOW:

One club discourages dancing when it charges a cover, says owner Jason Llorin. “You put things where they think it’s a dance floor — you just put a stool, or you put a tabletop with stools all around it. That’s, you know, that’s all you can do.”

Since it gave away more than $100 million in annual taxes to shareholders of the country’s wealthiest, most profitable corporations, the Department of Revenue is now using its powers to target tiny little dance halls and night clubs – to find $880,000 in annual revenue.  The Century Ballroom’s fundraising efforts are essentially paying for Microsoft’s Nevada tax dodge.

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Posted by Jeff Reifman

Jeff is a technology consultant based in the Pacific Northwest.

One Comment

  1. Dance party at Microsoft?


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