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Beauty Bar is one of the venues still defending itself from Cook County's claims that it owes back amusement taxes in the six figures.
On Wednesday, October 26, the Cook County Board of Commissioners approved an amendment to county tax rules making clear that all musical performances—including most DJ sets—should be considered "art" for the purposes of assessing the county's amusement tax.
Commissioner John Fritchey, whose proposal of the amendment had already been widely reported, touts the change as a win-win for the county, its small music venues, and the musicians who rely on those venues. The code now makes explicit that the county is not in the business of deciding
what is and what is not "fine art." But at the same time, the county's Department of Revenue is still going after some of those same small Chicago clubs for back taxes and fees totaling hundreds of thousands of dollars apiece—and the hearings inexplicably continue to foreground the question of whether potentially exempt performances qualify as fine art.
Fritchey introduced his amendment as a consequence of comments made in August by hearing officer Anita Richardson, appointed by the county's Department of Administrative Hearings. She claimed that live performances of rock, country, rap and electronic music do not constitute "fine art"
by the county's standards and therefore do not qualify for an exemption from a 3 percent amusement tax on cover and ticket charges. She made these statements while overseeing administrative adjudication proceedings between the county's Department of Revenue and two small clubs, Beauty Bar and Evil Olive.
Those proceedings are ongoing—the county is still pursuing those venues (and several others) in an attempt to collect taxes dating back to 2008. (Attorneys for the venues disagree that their clients owe those taxes.) But to judge from county officials' statements, Richardson's reading of the tax code is an irrelevant distraction—what the county says it actually wants is documentation (such as contracts) to prove that certain performances are in fact exempt as claimed. Whether or not the performances count as "fine art" is immaterial, or at least should be.
Regardless of their relevance to the tax exemption, Richardson's comments shocked the music community. The county drew harsh criticism in local and national publications for attempting to define art or elevate some genres of music as more worthy of a tax break than others.
Since 1998, county code has stipulated that venues with a capacity of 750 or fewer are not subject to the amusement tax so long as the fees charged at the door are for "live theatrical, live musical or other live cultural performances." (Some of its language defining performances was amended in 1999.) The code, prior to Fritchey's amendment, defined live musical and cultural performances as "any of the disciplines commonly regarded as part of the fine arts."
Fritchey's amendment to the amusement tax code, crafted with input from county officials and venue owners (including Metro and Smart Bar owner Joe Shanahan), might help repair the damage that this debacle has done to Chicago's reputation as a hub for music and the arts—it would make it impossible for any future officials to parse the code as Richardson has. The amendment went into effect Wednesday, October 26, following approval by county commissioners, and it does not include the phrase "fine art" at all (in this context, it says only "live music"). It further states that "it is not the role of government to restrictively decide and define what is and is not 'music.'" In the amended code, venues holding fewer than 750 people are not subject to the amusement tax if their door charges or ticket fees go toward "live theatrical, live musical or other live cultural performances," regardless of genre.
The new code language also includes a subsection focused on DJ performances, which notes that "DJs have been considered an art form for many years now" and mentions the 1998 establishment of a Grammy category for remixers (Frankie Knuckles
was the first winner). According to the amendment, DJ performances are tax exempt as long as the prerecorded music used is either original or substantially modified by the artist—and as long as the artist is paid $2,000 or more for the show.
Even if both of those conditions aren't met, the performance may still qualify for the exemption if it meets four of the five following criteria: 1.) the DJ is featured in ads for the venue, 2.) the DJ is visible to patrons during the performance, 3.) the DJ is the primary act, 4.) patrons are charged at least one and half times the amount they would be charged were the DJ not performing, and 5.) the DJ is represented by an agent or manager. The criteria are similar to language in the city's amusement-tax code.
Saiyna Bashir/Sun-Times Media
Cook County commissioner John Fritchey, shown here at a 2015 meeting, spearheaded a successful effort to amend county tax code to make it clear that officials are not in the business of defining "fine art."
During the county board meeting on Wednesday, Fritchey said that the amendment "is not a real deviation from how this has been done and enforced over the past." Zahra Ali, director of the county's Department of Revenue, echoed his comments, telling the commissioners at the meeting that the purpose of the amendment is "to codify existing current enforcement practices."
Fritchey and Ali's comments don't square with what's actually going on in Richardson's hearings, where the venues still believe they have to litigate what counts as fine art in order to prove that they should be exempt from the tax. During the most recent such hearing, on Monday, October 24, Matt Ryan, an attorney for the company that operates Beauty Bar, submitted a witness list to Richardson that includes DJ Derrick Carter, several other Chicago-based DJs, several scholars in musicology and music theory, and Corbett vs. Dempsey gallery cofounder John Corbett, an adjunct associate professor at the School of the Art Institute and longtime Reader
Why Richardson still needs convincing
is unclear, given that all live musical performances (and most DJ sets) are now clearly exempt regardless of their status as fine art. The actual issue in these hearings appears to hinge on documentation, not cultural gatekeeping.
When pressed, Cook County Department of Revenue public information officer Ted Nelson said in an e-mail that "this legislation does not apply retroactively." He reiterated a claim made by county CFO Ivan Samstein in a previous interview with the Reader
that the employees of the Department of Revenue "have never been arbiters of what constitutes art."
"A venue that owes back taxes, and fails to provide the appropriate documentation to our auditors, will continue to be liable for taxes they owe," Nelson wrote.
In a follow-up interview on Thursday, October 27, Samstein said that if businesses don't provide books and records to county auditors, they'll "eventually get hit with a tax assessment." He said the county has considered (and continues to consider) all live music performances exempt from the tax, with the possible exception of some DJ sets.
According to documents included in Beauty Bar's Cook County case report, last year a county auditor requested the venue provide a year's worth of contracts with its DJs in addition to a signed statement describing its reasoning for why the performances should be exempt from the amusement tax.
"No reply to documentation request was received," the case report reads. An assessment was then issued and calculated "based on the best information available to the Department" for the period from January 2008 through May 2015. It amounts to about $100,000 in taxes owed and about another $100,000 in interest and penalties.
Bruce Finkelman, a managing partner in 16" on Center, the development company that owns Beauty Bar, says his company filed for amusement-tax exemptions through the city and the county—and that both were granted. He says the business replied "in a timely fashion" to the county's audit requests, flatly contradicting the case report.
Samstein conceded that it's common for a tax assessment to decline once businesses start handing over documents and records. But when asked how this all got started—that is, whether someone had issued a directive to audit small Chicago music venues, given that so many of them are embroiled in tax disputes with the county—he didn't answer. He changed the subject, pointing out that for every venue that's engaged in administrative adjudication, dozens more are compliant with the county's tax code and auditors.
Fritchey believes the new amendment means that no county hearing officer will ever again be able to rule on an amusement-tax case based on a subjective personal definition of "art," but the owners of Beauty Bar and their attorneys are proceeding with their case under the assumption that they still have to prove the artistic and cultural value of DJ performances in order to avoid a punishing back-tax bill.
Their next hearing is set for Monday, January 9, and the case will likely drag out well into the new year. It will be interesting to see how or if Richardson responds to the amended tax code.
Finkelman appreciates the work Fritchey and others have done to push through the amendment, but he says it doesn't solve the underlying problem—the county's continued pursuit of back taxes from small music venues. Given the invaluable role these venues play as a platform for the city's musical talent, no decision that drives them out of business should be made lightly.