CINCINNATI -- A federal judge issued a ruling this week that revives a lawsuit filed by the former owner of the Bunbury Music Festival, which could put the future of Cincinnati’s admission tax in jeopardy.
It accuses the city of forcing them to pay tens of thousands in taxes, while other music festivals paid nothing.
If successful, this case could erase the city’s admission tax altogether – which added $5.8 million to the city’s coffers this year – and expose the city to losing millions in future tax revenue.
“This is a classic case where good lawyers have found a loophole in a city ordinance that was written before the booming popularity of music festivals,” said University of Cincinnati law professor Stephanie Hunter McMahon.
Bill Donobedian, the former owner of Bunbury and its country music counterpart, the Buckle Up Festival, first filed the lawsuit in December 2015, 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.
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.
U.S. District Judge Michael Barrett dismissed a key part of the lawsuit in February 2017 – saying Donobedian couldn’t sue over the vagueness of the law.
After Donobedian’s attorney, Bob Smyth, deposed two city employees who admitted that the wording of the admission tax code was, in fact, vague, he asked the judge to reconsider his decision. And Barrett did.
On Aug. 28, Barrett issued an order reversing his earlier ruling that would have gutted a major part of the lawsuit. He is now allowing it to move forward on the grounds that the city’s admission tax may be unconstitutionally vague, and also that the city may have selectively enforced it
Kim Perry, the city’s admissions tax administrator, testified in her deposition about the code - “It is vague … I can interpret that to mean anything,” according to court documents.
John Walsh, the city’s former treasurer, said in his deposition, “I think some of the language is obscure ... I think some of the wording needs to be cleaned up, made a little bit more clear.”
Walsh also said, “It may not be real clear to the general public what could be subject to the admissions tax,” according to court documents.
Barrett’s decision allows the case to move forward either toward trial, or settlement with the city.
“We are very pleased with the court’s decision. And we look forward to continuing the pursuit of our claims,” Smyth said.
The city did not respond to a request for comment.
If Donobedian wins the case, it could cancel out the entire statute so that no one would pay admission tax, which would be a huge hit to the city’s budget, McMahon said in a 2017 interview.
The admission tax added more than $18 million to city coffers in the past three years.
Donabedian, who founded the festivals before selling them to PromoWest Productions in late 2014, said the city unfairly targeted Bunbury and Buckle Up. 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.
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 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.
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 in a 2017 interview.
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 question the judge must (re)consider is whether the statute will be read narrowly or take into account changing venue types,” McMahon said. “If the judge chooses to read this, or other tax statutes too narrowly, the judge must expect the city to achieve perfection in its legal drafting — something we cannot even hope for from the better financed federal government.”
In June, two Cincinnati City Council members proposed raising the admission tax from 3 to 5 percent. It would have generated $3.6 million each year to largely fund human services agencies.
But that plan to raise taxes on tickets to concerts and sporting events was abandoned last week, after no one volunteered to lead the campaign for the new levy.