MINNEAPOLIS (AP) -- Promoters of major performers who come to Minnesota are using a tax loophole to avoid paying state and city sales taxes on money from admissions, according to Minneapolis Community Development Agency data.
The for-profit promotion companies take advantage of an exemption in state law by teaming up with tax-exempt groups to produce shows. The exemption's cost to the state alone is $3.5 million annually and climbing.
"Even if it is legal, it begs the question of whether or not it is appropriate," said State Auditor Judi Dutcher.
The exemption is most notably taken advantage of at the Target Center. In the first quarter of 2000, producers avoided nearly $515,000 in state and municipal taxes. That compares with $630,000 for all of 1999 and $592,000 for 1998.
Use of the exemption is expected to spread after St. Paul's Xcel Energy Center arena will begin competing with the Target Center for major shows in October.
It works like this: For-profit promoters such as Jam Productions of Chicago, SFX Entertainment of New York or Rose Presents of Minneapolis produce an event for a tax-exempt organization. Although the exemption was intended for nonprofit arts organizations, promoters have used it in partnership with groups like Theatre Live!, the Minnesota Food Bank Network or the Minnesota Clean Water Fund.
The money they save allows them to offer more money to bands. Those who can't offer exempt status risk losing shows to those who can.
Jam avoided nearly $45,000 by allying with the Minnesota Food Bank Network to promote the Red Hot Chili Peppers show on March 24 at Target Center. In exchange, the Food Bank Network received about $10,000, said executive director Maggi Davern.
The sum isn't grand for the Food Bank Network, which has an annual budget of about $4.8 million, but Davern said the relationship is "extremely positive" because of the publicity it brings.
Arts groups use the exemption, too. The Minnesota Orchestral Association avoided more than $56,000 in taxes when it promoted a 1998 Yanni concert at the Target Center.
The exemption, passed by the Legislature in the early 1980s, says no sales tax may be imposed on admission to events "sponsored by a nonprofit arts organization."
"The intention of the statute was to be of help to bona fide nonprofit arts organizations," said Larry Redmond, who lobbied for the law and still represents Minnesota Citizens for the Arts, a group of more than 1,000 arts groups, including the Minnesota Orchestra, the Guthrie Theater and scores of smaller groups.
The question of who should benefit is being examined by the state Department of Revenue, and the exemption could be eliminated as part of Gov. Jesse Ventura's tax overhaul proposal for the 2001 Legislature.
Jerry Mickelson, co-owner of Jam Productions, has teamed with nonprofit groups and used the exemption, but still wants it abolished.
"It's a pain. I'd much rather pay the tax than have to think about these issues," he said. Mickelson said he knows of no other state with similar exemptions.
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