TAX NEWS - June 2010

Alabama Tax: Peanut Festival tax issue still in court

Alabama courts are still attempting to sort out a multi-year legal battle between the National Peanut Festival and the Alabama Department of Revenue relating to the amount of tax ultimately owed to the state.

While state law generally exempts agricultural fairs from paying state sales tax on its receipts, the National Peanut Festival presents a problem for assessing tax because attendees are exposed to a mish-mash of events for the price of a single admission ticket — some of which are agriculturally related while others are not.

The festival and revenue department have been arguing for several years about the amount of tax owed. Recently, the Alabama Court of Civil Appeals ruled the festival owed the state sales tax on gross receipts from the 2004 and 2005 festivals, but only on those days in which concerts were held at the festival.

The case has been sent back to Houston County Circuit Court to determine the amount of tax owed.

Traditionally, the festival paid sales tax on gross receipts from admission tickets to the state. However, after 2003, the festival stopped paying the tax because others in the state fair industry told festival officials that the festival should be exempt from the tax. In 2004 and 2005, the state paid the tax under protest and sued in local court to recover the tax revenue.

Initially, a 2008 local court decision exempted the festival from all taxes owed in 2004 and 2005.

On appeal, the Alabama Court of Civil Appeals determined the state was allowed to collect an amusement tax of 4 percent of gross revenues generated from the operation of "nonagricultural shows or exhibits" at the festival. The festival and department of revenue ultimately determined tax should be owed on admission to the "Little Miss" and "Big Miss" Peanut pageants held off site, but in connection with the festival, as well as the concerts that take place during the festival. It was determined concerts took place on only four festival days during the 2004 and 2005 festivals.

The case was sent back to the Houston County Circuit Court, and Circuit Judge Lawson Little ruled the festival owed only $7,449.77 in amusement taxes for the years 2004 and 2005 instead of the $65,494.29 levied by the state. Thus, the court ruled the state owed the festival a refund of $58,044.52.

The Department of Revenue appealed the decision, again, to the Alabama Court of Civil Appeals, contending that it is up to the festival to meet its burden of proving what portion of the gate admission receipts was exempt from the amusement tax.

The festival disagreed, arguing that the department has the burden of proving what revenue is applicable to be taxed.

The appeals court agreed with the department's argument.

"The taxpayer (festival) did not attempt to prove that amount, leaving the trial court to speculate as to that issue," Appeals Court Judge Terry Moore wrote in the recent opinion. "The taxpayer should not be allowed to profit from the failure to discharge its burden by avoiding any taxation on its gate admission receipts, as the trial court held."

Judges Moore, Craig Pittman and Terri Thomas concurred. Judge William Thompson concurred in part and dissented in part. Judge Tommy Bryan concurred in part and dissented in part.

"I am still of the opinion that all receipts generated by the sale of admission tickets to events or shows associated with the Festival are exempt from taxation," Bryan wrote in his dissent.