PEORIA, AZ — There is outrage from some small business owners in Peoria as they are being hit with tens of thousands of dollars in back taxes over what’s called an ‘Amusement Tax.’
According to the Arizona Department of Revenue, businesses in Arizona that charge admission or user fees for exhibition, amusement or entertainment have to pay taxes under what’s called “amusement.”
There are common exceptions, according to the Arizona Department of Revenue, that include the following:
Who Must Pay
If you operate or conduct a business that charges admission or user fees for exhibition, amusement or entertainment, you may be subject to the transaction privilege tax. Examples of taxable business activities include but are not limited to:
• Sporting events
• Concerts
• Some tours
• Bowling or golfing
• Coin-operated video games
• Theaters
• Movies
• Shows
• Tennis courts
• Carnivals
However, there is something called an ‘Option H’ that cities can adopt, which states, “(2) health spas, fitness centers, dance studios, or other persons who charge for the use of premises for sports, athletic, other health-related activities or instruction, whether on a per-event use, or for long-term usage, such as membership fees.”
The City of Peoria has adopted this tax code option since at least 2002, although city officials could not say exactly when.
Local business owner Howard Munding of Championship Martial Arts Peoria tells ABC15 that he has never heard of the amusement tax and learned about it in September when the City of Peoria informed him that he owes over $32,000 in back taxes dating back to 2017.
“It’s not an amusement,” said Munding, “We’re an education.”
“Why would you even think to look at amusement when the IRS when you fill out to get your EIN number, they want to know what business you’re in and you type martial arts to the website, it comes up educational services, why would anyone look at amusement,” Munding questioned.
Peoria’s deputy city manager tells ABC15 that the city started doing audits at random business plazas and learned that businesses like LA Dance were not paying this tax.
Lora Wood tells ABC15 that it was never communicated to her that she needs to pay this type of tax.
She spoke at a recent city council meeting about how she owes over $52,000 in back taxes dating back to 2017, “In May of 2023 my business was one of the very first to receive a hand-delivered letter from the city on a department of revenue letterhead stating that my business falls under the amusement tax category,” she said.
Wood tells ABC15 that she was given two weeks to pay the back taxes, and since she could not pay it in full she is being charged nearly $10 a day in interest.
Deputy City Manager Kevin Burke said that Peoria has the option to tax martial arts studios, dance and gymnastic studios because of that option H that they adopted. Burke tells ABC15 that it is on the businesses to know what taxes they are to pay, adding that they host tax workshops for businesses many times throughout the year.
Burke was asked if this falls on the city for not realizing that businesses like a martial arts studio or dance studio were not paying the amusement tax as far back as 2002, “It is well established in Arizona that it’s every individual’s responsibility to know the law and the implications of the law on their businesses, and so that’s not a responsibility of the city,” Burke said.
Burke said there have been three audits done, and that the city has sent nearly a dozen letters to businesses under the martial arts, dance studio, and gymnastics category that they are subject to the amusement sales tax as well.
Peoria’s Chamber of Commerce CEO calls the move by the City of Peoria an ‘anti-attraction measure’ to Peoria as it may deter small businesses from coming to the growing city.
“To call that amusement, it just doesn't fit when you look at the other businesses that are categorized under that amusement tax category,” said Rhonda Carlson, President & CEO - Peoria Chamber of Commerce.
Carlson said that she feels these businesses are charging for their instruction not to use their premises like the tax code states, “These businesses that we're talking about don't charge for the use of their premises. They charge for their instructional services. And so that's where that language is ambiguous and we continue to engage with them.”
As for Munding he has not raised monthly tuition for those who take his classes but says he will have to consider if these taxes continue.
