Can Machines Selling Scrip In-House Currency Be Taxed?

Announcer: It’s Quinn and Cantara on PYX 106.

Quinn: 1-800-LAW1010.

Cantara: This is what I imagined. We send a topic idea to Paul Harding of Martin, Harding, and Mazotti. He takes a look at it. He deems himself not doing that.

Quinn: He’s not doing that.

Cantara: And he goes, “Chas, can you go on the radio tomorrow? So here’s Chas Farcher to talk, strip clubs, and not cryptocurrency, but something like that. Skinflint.

Quinn: All topics are treated equally and fairly. it’s purely based on schedule. I just happen to be a strip club and cryptocurrency expert.

Cantara: There’s a lot of things I need to figure out here. But just to read a little bit from the story, a businessman who supplies currency for strip joint clientele, can’t be a skinflint on his taxes. I guess the Appellate Division’s Third Department or an Appellate Court ruled against John Scarfi, a New Jersey-based owner of Metro Enterprises. He owns machines that sell script in in-house currency, used by some topless clubs, and then he takes a cut of it. And he’s trying to avoid paying taxes because it’s not real currency. Did I say that right, Chas?

Quinn: Ah, you looked like you nailed it.

Chas: You got it all done, Wilson. Thanks for having me on.

Quinn: First of all, we’ve got this other currency. It sounds like there are other clubs that are either owned or not owned by him. It sounds like a real concerted effort to escape taxes by, you know, going over state lines and stuff. What are we looking at?

Chas: This is a continuation of a 2012 decision. So in 2012, it was Nite Moves in Latham that got hit hard, where they tried to avoid taxes on lap dances.

Cantara: Well, because it’s considered a performance, and those are tax-free. And I actually side with Steven Dick on that one.

Quinn: Yeah, actually they fought the good fight all the way to the Supreme Court.

Cantara: I don’t think he’s wrong.

Chas: Well the Court of Appeals, the highest court in New York state, disagreed with you and the owner of Nite Moves in that case. And they found that they weren’t an artistic performance, that there was some degree of difference between, say, that and the ballet.

Cantara: They should have put a window in that place. That’s what they should have gone to the Supreme Court for. Love you, Steven.

Chas: So this is just kind of the next iteration of that decision, which says that the guy who put these ATM machines in a strip club so people can buy in-house currency, maybe so they don’t keep track of how much they’re spending, or maybe so the house can keep track of how much they’re spending. But basically you convert your money to a bitcoin, or in this case, a script, and you use the script to buy the dances. Those machines essentially charge ATM fees and take a cut of the money that’s spent. No taxes were paid on that and the Appellate Division has ruled that, in addition to strip dances, the money in strip clubs is also taxable. That’s where we’re at currently.

Cantara: If he’s a New Jersey-based owner, why was this handled in a New York court?

Chas: Because the venue’s New York, that’s where the businesses are and that’s where the machines are. So if I live in Jersey, but I own a Mr. Sub in New York, I’m paying New York state taxes. Mr. Scarfi lives in Jersey, but all his machines are in New York strip clubs.

All right.

Cantara: So, I guess, is there any case for him to not pay taxes? Do vendors have to pay the same taxes as a strip club owner?

Chas: He’s gonna have to pay sales tax. He’s considered a vendor. His argument was he wasn’t a vendor because essentially, he was just putting in these ATM machines, these fee machines. But, you know, the tax law’s written very favorable to the state, and not very favorable to the tax person. So essentially, if you want an exemption, everything’s essentially deemed taxable, unless you can prove an exemption applies, and it’s a pretty tough standard. You know, so for instance, with the 2012 case, you know, they were trying to prove that [inaudible 00:03:34] lap dances were the same as, you know, ballerinas and ballet dances. And in this case, he’s trying to prove, “Look, I’m not a vendor. I’m not selling anything.” But the courts have said, “Well, that’s not really true. You’re selling currency that’s being used in these clubs. And if the dances are taxable, then the currency you sell in the clubs to buy the dances is also taxable.”

Cantara: Well, you sound like a real wet noodle this morning, Chas.

Chas: Sorry. I don’t know what you want from me. I mean, come on.

Cantara: You’re so stern, man.

Quinn: Listen, as far as the taxes go with the cryptocurrency, I don’t know if it’s the same thing, but they call cryptocurrency…they only treat it as property.

Chas: I tell you, you’re in trouble now, between bitcoin going down, this looks bad for the script business here. So I don’t know about that.

Quinn: I think it’s a select few choice folks using that script currency.

Cantara: I never [crosstalk 00:04:19]

Quinn: I don’t think it’s going to affect it, big scale.

Cantara: What is it that John Scarfi have to pay the state, a couple of million?

Chas: 3.8 million was what he was assessed at. That’s not including penalties and late fees, so looking at a few million bucks. That’s a lot of script.

Cantara: Maybe get an extension. Call our buddy Steven. He’ll give you a good lawyer. They’re not the same people. Totally different people, right?

Quinn: What’s that?

Cantara: Steven Dick Jr. and this Scarfi guy.

Quinn: Oh, yeah, they’re different. Remember Steven’s case?

Cantara: Yeah, absolutely. [inaudible 00:04:48] convention in Vegas, but, yeah.

Chas: Maybe you need an in-house field trip. Go see how this thing actually works and let’s get back together on it. That’s what we need to do.

Cantara: There’s something about a deep dive I don’t wanna do at those places. You know what I mean? I wanna stay surface.

Quinn: Listen, Cantera, Reina and myself, we’ve been to every place in town, whether we told you about it or not.

Cantara: That’s not true. That’s not true.

Quinn: Chas Farcher filling in for Paul Harding from Martin, Harding, and Mazzotti. Thanks for taking this case, Chas.

Chas: Oh, thank you, gentlemen. Thank you, and have a great day.

Cantara: 1-800-LAW1010,

Announcer: Quinn and Cantara.