Strip Club Claimed Dancers Were Therapists To Skirt $3.1M In State Taxes

Image courtesy of Brett Neilson

It’s not uncommon for companies to try to finesse their way out of a hefty tax bill, but one Manhattan strip club tried a unique excuse when attempting to skirt $3.1 million in state taxes: Its dancers were providing therapy to customers, and not just entertainment.

The New York Daily News reports that the owners of the Penthouse Executive Club unsuccessfully argued to a state tax appeals tribunal that it shouldn’t have to pay taxes because its dancers proved patrons non-taxable services akin to a massage therapist or sex therapist.

The club’s tax troubles go back several years when an audit for 2010 and 2011 found that the company neglected to pay taxes on its sale of in-house currency. The currency, dubbed “executive dollars,” is purchased by patrons when they enter and can be used to tip waitresses or pay for dances.

The state’s Department of Taxation and Finance determined that the currency was similar to an admission charge and subject to taxes. As a result, an audit determined the club needed to pay taxes on an estimated $24.8 million in executive dollar sales.

The club, however, wasn’t okay with this bill and challenged it. A judge ordered the owners to pay the taxes.

That’s when the case was sent to the state tribunal, where the club owners argued that “what is provided in its clubs is not entertainment, but rather a non-taxable service similar to a therapeutic massage conducted in a sensual manner or personal services provided by a sex therapist.”

Additionally, it claimed that the in-house currency was like play money that was used for the convenience of its dancers, who the club argued were independent contractors.

The tribunal didn’t agree, claiming that the club didn’t provide evidence to support their argument, leaving Penthouse Executive Club with a $3.1 million tax bill.