Similar to a luxury tax, entertainment taxes are imposed on items that are considered to be extravagant, or luxurious in nature. Entertainment is not considered a necessity for citizens, and can therefore, be subject to taxation.The entertainment tax often applies to tickets to events, including movie tickets, theatre tickets and concert tickets.
The tax may also be applied to music Cd’s and DVD’s when rented, or purchased at the store. Each state will have differing rules and regulations that dictate when the entertainment tax is applicable. Most states do not tax events which are considered educational in nature, such as museum trips.
Often times, venues dispute the entertainment tax imposed on their venue. The Wisconsin Supreme Court ruled that the states tax policy allowed for a tax on the Symphony orchestra. Yet other states have a tax policy that would consider that type of event as educational. Each state has differing regulations in their tax policy, which dictates the tax rate and the events that include the entertainment tax.
Generally, states determine imposition of the entertainment tax, based on several factors. In the case of a museum, admission is often tax exempt. The primary purpose of going to a museum, is thought to be educational. Events with an educational purpose, or a fund raising purpose, are often exempt from the entertainment tax.
In some states, tax policy would allow the entertainment tax to be imposed if an event at the museum were for entertainment purposes, such as concerts or other shows. Each state has a tax policy that defines taxation and the items and events to which the taxes apply.
States that impose entertainment taxes, as per the states tax policy, often impose the taxes on events that have a primary purpose of entertainment. The primary purpose question is sometimes challenged in court. In Wisconsin, it was held that music, of any kind, is entertainment, unless the event has a primary purpose of fund raising.
Primary purpose, is generally determined if more than half of the show, is meant to entertain the audience. The organization in charge of the event, may also play a factor in the primary purpose test. If an educational organization has an event which is in question, the type of organization sponsoring the event may be the determining factor in whether the tax policy allows an entertainment tax exemption.