July 18, 2019

Colorado Court of Appeals: Customers of Adult Video Arcades Subject to Sales Tax

The Colorado Court of Appeals issued its opinion in Romantix, Inc. v. City of Commerce City on June 25, 2010.

Summary Judgment—Sales and Use Tax.

The City of Commerce City (City) appealed the district court’s summary judgment in favor of plaintiff Romantix, Inc. (Romantix). The judgment was reversed.

Romantix operates an adult video arcade in the City. Customers are given the opportunity to view various films. They can purchase prepaid cards that enable them to activate a “film preview” or an “arcade” feature in a private room on the premises using equipment furnished by Romantix.

In the film preview option, the customer chooses a film to watch inside a private room. The customer can fast-forward, adjust sound, and start and stop the viewing. The charge is based on the size of the room. In the arcade option, the customer may view any of approximately fifty film channels. Charges are $5 for the first twenty minutes and 25 cents for each additional minute. The customer can switch channels, fast-forward, adjust sound, and start and stop the viewing.

Romantix collected City sales tax from its customers based on the price the customer paid for the prepaid cards for tax years 2005, 2006, and 2007. It later sought a refund. Following a hearing, the City’s hearing officer determined no refund was owed. Romantix appealed to the district court under CRS § 29-2-106.1(8)(a). The court granted summary judgment to Romantix.

On appeal, the City argued that the transactions are taxable for several reasons. The Court of Appeals agreed, holding that the transactions constitute a grant of a license to use tangible personal property and therefore are taxable under CRS § 20-4-1 of the City’s Sales and Use Tax Code (Code). The film-viewing equipment falls under the Code’s definition of “tangible personal property,” and the viewing falls under the Code’s definition of “use.” Further, customers effectively acquire a license to exercise a degree of control over the equipment to customize their viewing experience. Accordingly, the judgment was reversed and the case was remanded to the district court with directions to grant the City’s cross-motion for summary judgment.

This summary is published here courtesy of The Colorado Lawyer. Other summaries by the Colorado Court of Appeals on June 25, 2010, can be found here.

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