Music festivals revolt against Cincinnati admission tax with federal lawsuit

CINCINNATI -- Why was the Bunbury Music Festival forced to pay tens of thousands of dollars in taxes to the city of Cincinnati, while other music festivals were asked to pay nothing?

That question is at the heart of a federal lawsuit accusing the city treasurer’s office of selectively choosing which concerts and performances are required to pay the city’s 3 percent admission tax.

The lawsuit accuses the city of “discriminatory enforcement.” While Bunbury was asked to pay $42,128 in admission tax to Cincinnati in 2013, for example, other ticketed events didn’t pay a dime.

If successful, this case could erase the city’s admission tax altogether – which added more than $6.5 million to the city’s coffers this year – and expose the city to losing millions in future tax revenue.

“If they win, there are not just implications for (Bunbury),” said Stephanie Hunter McMahon, a University of Cincinnati law professor who reviewed the case. “If it is not being applied fairly, it would cancel out the entire statute so no one would pay admission tax … that could be a huge hit for the city’s budget.”

Arlo McKinley and the Lonesome Sound perform at the CVG River Stage during Bunbury Music Festival on Sunday, June 5, 2016.

The former owner of Bunbury and its country music counterpart, the Buckle Up Festival, first filed the lawsuit in December 2015.

Bill Donabedian, who founded the festivals before selling them to PromoWest Productions in late 2014, said Bunbury and Buckle Up were unfairly targeted by the city. He paid more than $98,000 in admission tax “under protest,” in 2013 and 2014, according to the lawsuit.

Meanwhile other music festivals, such as the MidPoint Music Festival, which Donobedian launched in 2001 and helped run from 2002 to 2008, paid no admission tax, according to the lawsuit.

“Hundreds of bars, restaurants and other venues, as well as festivals, have never been required to pay a separate admissions tax to the city even though they charge a cover charge or other fee,” Donobedian alleged in court documents.

At issue is the vagueness of the city’s municipal code, which is murky about whether venues that do not offer reserved seating should be required to pay admission tax.

Attorneys for both sides declined comment.

But the city believes any for-profit event that sells tickets or charges admission must pay the tax.

“Plaintiffs’ decision to host the festivals without reserved seating does not exempt (them) from the admissions tax because ‘admission’ … includes seats, chairs, tables and benches ‘reserved or otherwise,’” according to court documents.

Here Come the Mummies performed at the CVG River Stage during Bunbury Music Festival on Sunday, June 5, 2016.

Because this definition is so broad, it potentially puts hundreds of bars, restaurants, sporting events, concerts – no matter how small – on the hook to pay a 3 percent tax.

“If you had a small bar, a neighborhood bar that brings in a band and gets five people to walk through door…they may have to pay the 3 percent tax,” McMahon said.

Because the city likely lacks the manpower to go after every person they could potentially collect admission tax from, they must pick and choose, McMahon said.

“The statute is written incredibly broadly … under that interpretation the city needs to be attempting to collect from anyone who charges admission. And they’re not,” McMahon said. “There’s not sufficient citywide capacity … to enforce this against everyone.”

In some cases, the city does use social media sites to find out about events that might be subject to the tax. That approach, along with more and bigger events taking place in Cincinnati, has helped to drive up admission tax collections in recent years, a city spokesman said.

In 2011, for example, the city collected $4.4 million in admission tax. Last year, it surpassed $6.5 million.

 

Other cities use that technique, too. Columbus doesn’t charge an admissions tax. But Cleveland operates much like Cincinnati. The city collects an 8 percent tax on any event – from bands playing at local bars to festivals – that charges an admission.

Cleveland city employees also scour newspapers, social media and websites, such as Eventbrite, to make sure they’re collecting a tax, a spokesman for the Cleveland mayor’s office said. 

“Treasury has always gathered information on eligible events through the media and this includes social media,” said Cincinnati city spokesman Rocky Merz. “Often organizers, especially of new or one-time events, may not be aware of this requirement.”

‘Everyone would start challenging it.’

Bunbury’s inaugural event took place in July 2012 and featured more than 100 performances on six stages.

With popular headliners such as Jane’s Addiction, Weezer and Death Cab for Cutie, it drew a stunning crowd of 50,000 people over three days to Sawyer Point and Yeatman’s Cove, where the festival has been held ever since.

Fans at Bunbury in 2015.

Yet despite it’s huge attendance, the city did not ask Bunbury to pay admission tax in 2012, according to the lawsuit.

A year later, in June 2013, as Donobedian was preparing to host the second Bunbury festival, he got an email from the city treasurer’s office. He would be required to charge patrons a 3 percent admission tax.

“Since the festival was just weeks away, and 52 percent of the tickets were already sold (which accounted for about 65 percent of the ticket revenue), it was impossible for Bunbury … to charge a separate admissions tax to its patrons,” the lawsuit states.

Coleman Hell performs at the CVG River Stage during the Bunbury Music Festival on Sunday, June 5, 2016.

Donobedian, who is also the former Fountain Square managing director, tried to plead his case to the city. But the city wouldn’t budge and Donobedian wrote a check for $42,128, “under protest,” according to the lawsuit.

Donobedian requested a hearing on “this unlawful admissions tax,” but it was never granted. He also met with city leaders but could not convince them that the admission tax was unfair, according to the lawsuit.

“In 2014, Bunbury Festival was struggling and Buckle Up sales were sluggish,” the lawsuit states.

But the two festivals still paid their admission taxes in December 2014:  Bunbury paid $33,932 and Buckle Up paid $22,046, according to the lawsuit.

That same month, Columbus-based concert promoter PromoWest Productions bought Bunbury and Buckle Up music festivals from Donobedian.

PromoWest owns several concert venues in Pittsburgh and Columbus and has been trying for three years to open a concert venue in Cincinnati.

The Wombats performed during fifth annual Bunbury Music Festival at Sawyer Point and Yeatman's Cove on June 3, 2016.

After a year-long hiatus, PromoWest announced last summer that it had canceled the Buckle Up festival.

Meanwhile Bunbury is gearing up for its fifth music festival beginning Friday, and expects 45,000 people over the three-day event.

Bunbury’s new owner is not part of the federal lawsuit and PromoWest CEO Scott Stienecker said the music festival pays admission tax to the city.

The lawsuit claims the MidPoint Music Festival never paid admission tax through 2015. But federal regulations don’t allow the city to reveal who pays tax and who doesn’t, Merz said.

The tax is now a non-issue for the long-running MidPoint festival, which originated with bands being hosted by local bars, theaters and music venues in Over-the-Rhine.

The 2015 MidPoint Music Festival kicked off on Friday, Sept. 25, 2015. Photo: David Sorcher

Music and Event Management Inc. (MEMI), a subsidiary of the Cincinnati Symphony Orchestra, bought the festival from Cincinnati CityBeat in 2016. Since MEMI is a nonprofit, the city exempts it from admission tax.

Meanwhile other smaller music venues are being targeted by the city to pay the tax.

“They were very aggressive pursuing collection of admission tax when we first opened,” said Dan McCabe, who owns The Woodward Theater, a century-old OTR venue that reopened in late 2014 after extensive renovation.

Although the Woodward does not offer specific seating, the city still collects a tax per ticket sold, McCabe said.

“But I know that is not always the case and (it) creates an uneven playing field for businesses like mine,” McCabe said in an email to WCPO.

In the meantime McMahon, the law professor, believes the city should rewrite its municipal code with a threshold of who pays admission tax -- such as events that sell more than 100 tickets.

Alberta Cross performs at the 2015 MidPoint Music Festival. Photo: David Sorcher

“There needs to be a definition of when this will apply,” McMahon said.

U.S. District Judge Michael Barrett agreed that a true dispute exists in whether the city “selectively enforced” the tax. He declined to dismiss the lawsuit in February.

Now the case is moving toward trial -- or settlement.

“I would be surprised if this didn’t settle,” McMahon said. “I would suggest it.”

What could happen if Donobedian wins in court?

“Everybody would start challenging it,” McMahon said. “Everyone who pays admission tax has the same claim.”

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