Friday, September 25, 2009

What They Were Thinking: The Arts Sales Tax Issue

So no sooner did we succeed in getting the bill passed in Harrisburg that averted the disastrous Plan C (on 9/17) than we were forced (the evening of 9/18) to face the sudden announcement that the budget agreement in Harrisburg included a new sales tax on arts and culture, an action that had received absolutely no discussion or debate beforehand. Surprise!

So what exactly happened?  In Pennsylvania, like most states, arts activity admissions and tickets are exempted from sales tax. The budget deal in essence removed that exemption, which would impose the 6% state sales tax on all such revenue. Since Philadelphia has an extra 2% sales tax (or will, after the new 1% for five year tax is added) the local tax in Philly would be 8%. Another wrinkle - the state budget deal also eliminated the exemption for commercial entertainment activity such as concerts and commercial theatre. This would cover everything from small music clubs to major rock concerts. Since Philadelphia imposes a 5% amusement tax already on this activity (and over 100 other PA municipalities also impose similar amusement taxes), the tax on them would be 13% unless some special action is taken! However, under the law municipalities may only tax sales the state is not already taxing, so unless the state "grandfathers" existing amusement taxes, the state's sales tax would trump the amusement tax. The net result for Philly would be a loss of 3% of our amusement tax.

The legislators estimated $100 million in revenue from these taxes, a figure that further investigation suggested might be considerably above reality. They were seeking ways to close the budget with new revenue to deliver a budget with a funding figure for education that would be acceptable to the Governor. There has also been an uproar over the exclusion of sports and movies from the new sales tax. It appears the reason for excluding sports is that stadium agreements essentially prevent the tax from being imposed (too complicated to go into the details), and with movies it is probable they were not considered because they are not subject to sales tax in ANY other state, making it a step that would arouse huge wrath from the motion picture theatre industry nationwide that would not want that precedent set.

The arts community throughout the state has now mounted a full-court press to fight the tax. It is not clear yet if that fight has a real chance for success. There is a simultaneous "Plan B" of trying to be at the table to ensure that if it is imposed it is structured in a way that does the least damage to this fragile sector - and I include the commercial concert business and small music clubs that are also very fragile right now. Can "memberships" be excluded from the tax - an issue of huge importance to museums?  Would already sold subscriptions for this season be exempted?  Since there has been talk of an "arts fund" being created with at least some of this revenue, can we ensure that these new taxes at the very least go towards ensuring sustained support for arts and culture without cuts at the state level, or maybe even generate some extra $ to go into an actual fund?  Many of the larger arts group had dedicated funding in the past, funding which is now threatened - does this new deal restore those funds with part of this money?  Similarly, funding for heritage museums and sites was also cut in earlier versions of the budget - can this now be restored? Finally, can we find a way to not "double tax" and damage our vital music clubs and concert venues?

This an extremely complicated and rapidly changing issue, and arts leaders and their lobbyists have been aggressively pressing their case. Of course, so have all the other areas negatively impacted by the budget. And ultimately, a balanced state budget is desperately needed. So if this tax is successfully beaten back, it would  probably only be because a substitute revenue stream was found, which is likely to arouse the ire of whatever "special interest" group might be negatively affected by a different new tax or fee.

Also of concern - and this raises a larger issue for our field as a whole - is that it appears this tax was "easy" to impose because of the perception that the arts are an activity benefiting the wealthy, educated elite who can easily pay the extra tax. This tax was not seen to affect a broad public constituency, and therefore was seen as politically easier and less painful to impose because it would have minimal impact on the average citizen. This is one of the biggest challenges our field faces - changing this perception. An even bigger challenge is that for many institutions this percpetion may be accurate. Demographically arts patrons ARE richer, more educated and - frankly - whiter - than the average population. We tout the wealth and education of our patrons when we want to secure a sponsorship from Lexus or BMW, and we love those black tie galas, but when we advocate with the government we are transformed into champions of average folks, school children, diverse populations, the elderly, neighborhood transformation. And we ARE those things as well - the arts touch every citizen whether they know it or not, and have a profound effect on our communities and our lives. We are both sides of that coin, Janus-like, and that makes for very complicated messaging, and challenging advocacy.

More information on the advocacy effort is available here on the Greater Philadelphia Cultural Alliance web site.


  1. Gary, thanks for this well-written and timely post. I know that arts advocates from the 49 other states are keenly watching what happens in Pennsylvania. They're worried that the state will rush to enact bad policy and in the end create very bad precedent for the rest of the country. Also, pay extra attention to the supposed fund to re-grant to arts organizations. Example: your neighbor in New Jersey is always looking at trying to re-direct its dedicated hotel tax for the arts to pay for other state programs.

  2. I've re-posted to the DC Advocates for the Arts blog; that is an impressive and impressively appropriate response to the situation.