Q & A: The Cabaret Tax
This Informational Publication has been superseded by IP 97(7.1)
PURPOSE: This publication is intended to answer some of the most frequently-asked questions concerning the application of the cabaret tax.
STATUTORY AUTHORITY: Conn. Gen. Stat. §12-540 et seq. (Chapter 225).
WHAT IS THE CABARET TAX?
The Connecticut cabaret tax is a 5% tax imposed on all amounts charged for admission, food and drink, service or merchandise at any cabaret or similar place furnishing music, dancing privileges or any other entertainment for profit, during the time that such music, dancing or other entertainment is furnished.
The cabaret tax will generally apply when the following four conditions are met:
Alcoholic beverages are sold or served in a room;
Entertainment or dancing privileges are provided (except as excluded by statute);
The business or event is open to the public; and
The business or event is conducted for profit.
IS THE CABARET TAX IMPOSED IN ADDITION TO SALES AND USE TAXES?
Yes. The cabaret tax is imposed in addition to sales and use taxes; however, the cabaret tax is calculated on the sales price of the items that are subject to cabaret tax before the addition of sales and use taxes. By the same token, sales and use taxes on items subject to the cabaret tax are calculated on the sales price of the items before the addition of the cabaret tax.
Like sales and use taxes, cabaret tax may be charged on a plus tax or a tax included basis. However, if either cabaret tax or sales and use taxes are included in the total price to the customer, a notice to customers that charges include cabaret tax and/or sales and use taxes should be prominently displayed in the cabaret room or the related room.
EXAMPLE 1: Tax calculated and billed on a "plus tax" basis:
|Food and beverages||$10.00|
|Sales and use taxes (6%)||.60|
|Cabaret tax (5%)||+ .50|
EXAMPLE 2: Tax calculated on a tax included basis, using the calculation fraction of .901 for both taxes (customer's bill should state that taxes are included):
|Total price, incl. SUT and cabaret tax||$10.00|
|Calculation fraction||x .901|
|Gross receipts of sale||9.01|
|Sales and use taxes (6%)||.54|
|Cabaret tax (5%)||+ .45|
WHAT IS A CABARET OR SIMILAR PLACE?
A cabaret or similar place is any room in any hotel, restaurant, hall or other public place where music, dancing privileges or any other entertainment, except mechanical music alone or the music of a single performer alone, are afforded to patrons in connection with the serving or selling of alcoholic beverages, even though the charge made for admission, food and drink, service or merchandise is not increased by reason of the furnishing of such entertainment.
WHAT IS A ROOM FOR PURPOSES OF THE CABARET TAX?
To be a cabaret, and hence for the charges for admission, food and drink, service or merchandise to be subject to the cabaret tax, the area in which the charges are made must be considered a room in a public place.
Outdoor areas, such as open stadiums, outdoor beer booths, fairgrounds, open air arenas and amphitheaters, parking lots, lawns and parks, are not considered rooms. However, a roof garden (an open area on top of a building) is considered a room, and an open patio, porch or deck next to and part of a building such as a bar or restaurant is considered a room.
A boat that is permanently moored is a room, as is a railroad car that is permanently parked. On the other hand, railroad trips or boat trips are not considered to take place in rooms because they are not confined to one location (even if the railroad car or the boat are temporarily stopped).
Related rooms. The cabaret tax applies to charges for admission to the cabaret room and food and drink, service or merchandise sold within the room where alcoholic beverages are being served or sold in connection with entertainment or dancing privileges. The cabaret tax also applies to sales in any other portion of the establishment from which the entertainment can be viewed, or from which there is free access (that is, unimpeded access) to the entertainment or dancing area.
Amounts paid for admission, food and drink, service or merchandise sold in any room that is entirely separate from the cabaret room are not subject to cabaret tax, if the patrons in the separate room cannot view the entertainment or dancing and any door in the wall or full wall partition between the rooms remains closed during the period of entertainment or dancing, except when persons pass from one room to the other. Areas separated from the cabaret room by portable or folding partitions or curtains that are completely closed, except when persons are passing from one room to the other, will not be considered part of the cabaret room. An adjoining room where the door between the rooms is kept open, or where a room is separated from the cabaret room by a glass wall, a half door or a see-through curtain, from which the cabaret room can be viewed, is a related room, and sales in the related room are subject to cabaret tax.
WHEN IS A ROOM IN CABARET STATUS?
A room is in cabaret status, and the amounts charged for admission, food and drink, service or merchandise sold in the room are subject to the 5% cabaret tax, when alcoholic beverages are being served or sold and entertainment or dancing privileges are being provided in the same room at the same time, or when an admission, cover or similar charge is imposed to enter such room, whichever occurs earlier.
Alcoholic beverages are considered to be served in a room if they are allowed to be taken into the room, even if they are purchased outside the room and carried into the room by the customer. (However, the alcoholic beverages must be purchased somewhere on the premises of the establishment; "B.Y.O.B." events are not in cabaret status.)
A room is not in cabaret status when alcoholic beverages are not allowed to be served or sold in the room, even if entertainment or dancing privileges are being provided during such times. If alcoholic beverages are being sold or served but no entertainment or dancing privileges are being provided (except if an admission charge to the room has already been imposed or if the band or other entertainment is on a break), the room is not in cabaret status.
However, when both elements (alcoholic beverages and entertainment) are present simultaneously in one room, then the cabaret tax also applies to sales in a related room from which viewing of the cabaret room or free access to the cabaret room are available, even though both elements are not present in the related room.
A room in which alcoholic beverages are served has a band playing from 7 p.m. until midnight, but the room stays open until 2 a.m. The room is not in cabaret status before 7 p.m., unless an admission or cover charge has already been imposed, or after midnight, unless dancing privileges (or some other entertainment) are available to the patrons after the band has finished playing for the night. The room remains in cabaret status from 7 p.m. through midnight even while the band is taking a break.
The same room does not allow alcohol to be served from 6 p.m. until 10 p.m., even while dancing privileges are available and while the band is playing. The room is not in cabaret status from 6 p.m. until 10 p.m.
A room in which alcoholic beverages are served has a band playing in the room. There is a second room where patrons can view the band through an open door, and where food and beverages are sold. Both rooms are in cabaret status.
The door is closed between the rooms, and the patrons cannot view the cabaret room through glass, a curtain or another opening. The second room is not in cabaret status.
There is a balcony from which patrons can view the room with the band, but the patrons cannot enter the room below. The balcony is in cabaret status.
There is a room on the floor above the room with the band, and the sound carries into that room, although patrons in the room cannot see the room with the band or enter it directly. The room on the floor above is not in cabaret status.
EXAMPLE 3: A room has a band but no alcoholic beverages are sold in the room. There is a second room where only alcoholic beverages are sold, with no band or dancing privileges, and no other entertainment. There is an open door between the two rooms, but alcoholic beverages are not allowed to be taken through the door. Neither room is in cabaret status, because neither room has both alcohol and entertainment or dancing privileges simultaneously.
WHAT ACTIVITIES CONSTITUTE ENTERTAINMENT FOR PURPOSES OF THE CABARET TAX, AND WHAT ACTIVITIES ARE EXEMPT?
To be a cabaret, a room must provide "music, dancing privileges or any other entertainment, except mechanical music alone or the music of a single performer alone" to patrons in connection with the serving or selling of alcoholic beverages.
Dancing privileges. Having a dance floor or dancing area available or allowing patrons to dance, always creates cabaret status when the dancing area is in the room where alcoholic beverages are sold or served, no matter what type of music, if any, is played.
Entertainment. This is an extremely broad category, encompassing any performance that an audience may watch, listen to or participate in. Entertainment includes, but is not limited to, singing, dancing, juggling, magic, animal acts, dinner theater, comedy, dramatic recitation, karaoke (with or without a disc jockey), instrumental music, disc jockeys, community singing and speaking.
Exempt entertainment. The statutory exemptions to entertainment for purposes of the cabaret tax are extremely limited, and must be strictly followed:
Mechanical music alone does not create cabaret status. This means mechanical music played by a juke box, the radio, a tape, record or CD player, without dancing privileges and without a live disc jockey and with no other entertainment accompanying the mechanical music.
The music of a single performer alone does not create cabaret status. This means one person playing one or more musical instruments, and/or singing, without dancing privileges and with no other forms of entertainment, even if the other entertainment is provided by the single performer.
The Department has also held that sporting events in which the audience does not participate, such as boxing, baseball, basketball or hockey, do not create cabaret status. "Sporting events in which the audience does not participate" do not include events ordinarily held in bars, such as mud wrestling, that have an entertainment component other than the sporting event itself.
A room in a bar serves alcoholic beverages, has dancing privileges, and alternates between mechanical music from a juke box, a disc jockey and a live band. The room is in cabaret status the entire time.
The same room has no dancing privileges. It is not in cabaret status when the juke box is playing prior to the time when the disc jockey starts working and when the band starts playing, unless an admission charge to the room has already been made. It is in cabaret status once the disc jockey or the band begins, even during their breaks, until they finish for the night.
A room in a restaurant that serves alcoholic beverages has a dance floor and piped-in music. Couples are permitted by the establishment to get up from their tables and dance if they choose. The room is in cabaret status.
The same room has a sign stating that no dancing is allowed except when the live band is playing. The room is not in cabaret status, except when the live band is playing, and during the band's breaks.
The same room has a single strolling violin player, but no dancing privileges. The violin player also sings. The room is not in cabaret status.
The same room has a pair of strolling violin players. The room is in cabaret status.
A room that serves alcoholic beverages has a dancer who dances to the music of a juke box. Sometimes the dancer sings while dancing. The room is in cabaret status the entire time.
The same room has only a single piano player and no dancing privileges. The piano player sings. The room is not in cabaret status.
The same room has only a single piano player and no dancing privileges. The piano player sings and tells jokes. The room is in cabaret status the entire time the piano player is there, because entertainment other than the music of a single performer is being provided.
WHAT CHARGES ARE SUBJECT TO CABARET TAX?
The cabaret tax applies to all charges for admission to, and food and drink, service and merchandise sold in a room that is in cabaret status, and in a related room from which the entertainment in the cabaret room can be viewed or from which there is free access to the cabaret room (see above).
Admission. Admission charges to rooms that are in cabaret status are generally subject to cabaret tax, not admissions tax. Admission charges that entitle a patron to enter both cabaret rooms and noncabaret rooms in an establishment are subject to cabaret tax. Amounts paid for admission to a cabaret room before the time it is in cabaret status are subject to cabaret tax if the admission charge entitles the patron to be present in the room later, when the room is in cabaret status.
Admission charges that are subject to cabaret tax are deemed to have been made by (and cabaret tax must be remitted by) the establishment where the cabaret takes place, even if all or a portion of the admission proceeds is collected by or disbursed to some other entity, such as a band or entertainer.
Except as noted above, admission charges to rooms that are not in cabaret status may be subject to admissions tax if the admission charges entitle patrons to access to amusement, entertainment or recreation.
Advance ticket sales to events held in rooms that will be in cabaret status are not subject to cabaret tax, but may be subject to admissions tax, depending on the type of event and where the event is held. "Advance ticket sales" are sales of admission tickets that take place either on or off the premises of the establishment where the event is to be held, at a place other than at the door to the cabaret room. Advance ticket sales made in Connecticut to events that are to take place outside Connecticut are not subject to cabaret or admissions taxes.
Food, drink and service. Cabaret tax is imposed on charges for food and for all beverages sold while the room is in cabaret status, not just alcoholic beverages (although alcoholic beverages must be sold or served in the cabaret room). "Food" includes meals and food items whether prepared on or off the premises, and food from vending machines in the cabaret room. Also included are food, meals and alcoholic or nonalcoholic beverages sold on a "take out" basis while the room is in cabaret status, provided such items are sold to a person who is in the room. Food and beverages sold on a "take out" basis to persons who do not enter the cabaret room or a related room, and food and beverages delivered outside the establishment, are not subject to cabaret tax.
Minimum food and drink prices that reflect charges for entertainment are subject to cabaret tax, as are any separate or additional charges for entertainment. All charges for service are subject to cabaret tax, if they are made by the establishment (e.g., mandatory gratuities). Voluntary gratuities given entirely to the service personnel who provide the service are not subject to cabaret tax.
If a tab is started for a customer before the time a room is in cabaret status, but the tab is not paid until after cabaret status has begun, or if a tab is started during cabaret status and is not paid until after cabaret status has ended, it will be presumed that the entire bill is subject to cabaret tax, unless the establishment can prove, by proper notation on the bill or by other records acceptable to the Department, that part of the bill is not subject to the tax.
Merchandise. Charges for items of tangible personal property sold in the cabaret room or in a related room, such as T-shirt, mugs and other souvenirs, and any item sold in a cigarette or other vending machine that is in the cabaret room or a related room, while the room is in cabaret status, are subject to cabaret tax, even if the items are exempt from sales and use taxes. The total retail charge to the customer is subject to cabaret tax. All such charges that are subject to cabaret tax are deemed to have been made by (and cabaret tax must be remitted by) the establishment where the cabaret takes place, even if all or a portion of the proceeds is collected by or disbursed to some other entity, such as a vending machine company.
Charges made for the use of billiard or other game tables, pinball machines, darts, or video games are not subject to cabaret tax, because they are not considered charges for service or merchandise.
WHAT IS A PUBLIC PLACE FOR PURPOSES OF THE CABARET TAX?
A cabaret must be a room in a "public place." A room in a public place is a room to which members of the general public may gain admission (subject to restrictions involving the legal drinking age, etc.).
Charges for and at such events as wedding receptions, retirement parties, private Christmas parties, and member-and-guest-only functions held at churches, social clubs, country clubs, fraternal clubs and veterans' clubs are not subject to cabaret tax, if the events are not open to the general public. If such an event is held at a public restaurant or bar, but the room in which the event is held is closed to the public during the time of the event, cabaret tax does not apply to charges in the room, even if the remainder of the establishment is open to the public.
Events that are open to the public that are held at churches, fraternal clubs, etc. are subject to the cabaret tax (except if they are not "for profit"; see below).
An establishment calling itself a "private club" may be determined by the Department to be a public place if it appears to the Department that the establishment is operating under the guise of a club, but in most respects is operating as a public commercial establishment. The following factors are among those that may influence the Department's determination that an establishment calling itself a private club is actually a public place:
the club is operated for profit and the profits inure to private individuals;
membership cards are issued by the operator to persons of the operator's choice;
a large number of memberships have been issued indiscriminately; or
the club is loosely organized, its members have no voice in its management, it has no committees, and the dues to the club are nominal or nonexistent.
WHAT DOES FOR PROFIT MEAN FOR PURPOSES OF THE CABARET TAX?
Even if it is held in a room in a public place, the cabaret must furnish music, dancing privileges or other entertainment for profit for the cabaret tax to apply.
Where the entire gross receipts from a cabaret, including income from admission charges, food and drink, service and merchandise (minus reasonable expenses) go to a nonprofit organization or governmental entity, the event will not be subject to cabaret tax.
To qualify as a "nonprofit organization," an organization must have been determined by the U.S. Treasury Department to be exempt from tax as an organization described in section 501(c) of the Internal Revenue Code, and must possess a currently valid determination letter to that effect.
A "governmental entity" is the United States, the State of Connecticut, or any of the political subdivisions thereof, or its or their respective agencies.
The Raccoon Lodge holds a member-and-guest-only cabaret night, with alcoholic beverages, dancing and a band. The event is not subject to cabaret tax, because it is not held at a public place (not open to the public).
The Raccoon Lodge holds a cabaret night to raise funds, with alcoholic beverages and dancing. It is open to all members of the public at least 21 years old. After paying for the food, the liquor and the band, the club will use all the proceeds to further the ends of its organization. The Raccoon Lodge possesses a currently valid letter acknowledging that it is an organization described in section 501(c)(10) of the Internal Revenue Code. The event is not subject to cabaret tax, because it is not for profit.
The Raccoon Lodge rents its hall to a for-profit entity, which holds a cabaret that is open to the public. The event is subject to cabaret tax. (The charge for rental of the hall is not subject to cabaret tax, because that is not a charge made in the room while it is in cabaret status.)
ARE ANY GROUPS OR VENUES SPECIFICALLY EXEMPT FROM CABARET TAX?
No groups or venues are specifically exempt from cabaret tax. Organizations, entities or venues that may be exempt from federal income tax, admissions tax or sales and use taxes are not exempt from cabaret tax by virtue of those exemptions, but may be exempt from cabaret tax if the gross receipts go to a nonprofit organization or a governmental entity, or if the events are not open to the public (see above). There is no "casual sale" exemption from the cabaret tax.
ARE ANY CHARGES SUBJECT TO BOTH CABARET TAX AND ADMISSIONS OR DUES TAX?
No. The admissions, cabaret and dues taxes are mutually exclusive.
MUST THE CABARET TAX BE SEPARATELY STATED ON THE CUSTOMER'S BILL?
The cabaret tax may, but need not, be separately stated on the customer's bill. Cabaret tax may be charged on a "plus tax" or "tax included" basis (see above). However, if requested to do so by a customer, a retailer must furnish the customer with a sales slip or other evidence of sale, showing the cabaret tax and/or the sales and use taxes separately computed thereon.
ARE ESTABLISHMENTS SUBJECT TO CABARET TAX ON FREE ADMISSION, FOOD, DRINKS, OR MERCHANDISE?
No. The cabaret tax applies only to items sold in a cabaret room, or in a related room. Therefore, there is no cabaret tax on the cost or value of free admission to a cabaret room, or on free food, drinks, service or merchandise provided in a room that is in cabaret status.
IS A CUSTOMER REQUIRED TO PAY CABARET TAX TO THE DEPARTMENT IF THE ESTABLISHMENT FAILS TO CHARGE IT?
No. The cabaret tax is imposed on the person making the charges that are subject to cabaret tax. Unlike the sales and use taxes, there is no separate imposition of cabaret tax on the purchaser. However, the person making the charges must collect cabaret tax from the purchaser, and the purchaser is required by law to pay the tax to the person making the charge.
WHAT TYPES OF RECORDS SHOULD AN ESTABLISHMENT KEEP?
To maximize accuracy in verifying and justifying the receipts subject to cabaret tax, an establishment should keep separate cash register tapes for the times the establishment is in cabaret status, or should "X" out its cash register tapes at the beginning and the end of cabaret status.
Taxpayers are required by law to keep accurate and detailed records, including cash register tapes, books of account and other documents and data, to establish which of their receipts are subject to cabaret tax. The Department is entitled by law to examine all books, papers, records and equipment of a taxpayer, and may investigate the character of the business of the taxpayer to verify any return made, or if no return is made, to determine the amount required to be paid. In the absence of adequate cash register tapes, books or other records, the Department, in its sole discretion, may use any methodology it deems reasonable to determine a taxpayer's liability for cabaret tax.
HOW DOES AN ESTABLISHMENT REGISTER FOR AND PAY CABARET TAX?
To register for cabaret tax, call the Department's Forms Unit at 860-297-4753, and request Form REG 1, Application for Tax Registration Number. For assistance with registration, call 860-297-4885.
Cabaret tax must be reported on Form O-372, Admissions, Dues and Cabaret Tax Return. Returns must be filed on or before the last day of each month setting forth the amount of the tax due for the preceding month. Payment of the tax must accompany the return.
EFFECT ON OTHER DOCUMENTS: None affected.
EFFECT OF THIS DOCUMENT: An Informational Publication is a document that addresses issues frequently raised by taxpayers, usually in a question-and-answer format. It is less technical in nature than a Policy Statement, but may be referred to by individual taxpayers for guidance.
FOR FURTHER INFORMATION: Please call the Department of Revenue Services during business hours, Monday through Friday:
• 1-800-382-9463 (toll-free from within Connecticut), or
• 860-297-5962 (anywhere); or
• TDD/TT (Telecommunications Device for the Deaf) users only call 860-297-4911.
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