I-Team: A taxing question: The Browns and Cleveland differ on taxing premium seats

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CLEVELAND – The FOX 8 I-Team learned the city of Cleveland differs with the Cleveland Browns over how much admissions tax the team should pay on club seats and loges at FirstEnergy Stadium.

Despite the difference, the city has signed an agreement with the Browns that might resolve the issue in the future

But, according to that agreement, a resolution would be applied “prospectively” – which appears to insure that the team may never have to pay any back taxes.

“Unfair, unfair,” said Councilman Mike Polensek, when we showed him the agreement between the city and the Browns.

“Am I surprised?” Polensek asks rhetorically. “No.”

The agreement was signed in February 2014 by the city’s law director and the president of the Browns.

**CLICK HERE to read the settlement agreement**

That was three months after Mayor Frank Jackson and city council agreed to pay $30 million over 15 years to help pay for improvements that the Browns wanted at First Energy Stadium.

The “Settlement Agreement,” says, in part, that “…the Browns and Cleveland differ on the question of whether the admissions tax should be applied to portions of the Premium Purchases.”

According to the mayor’s press office, “Premium Purchases” at the stadium include the loges and club seats.

The “admissions tax” is normally 8 percent on the price of a ticket.

In these situations, there can be a difference of opinion as to whether that tax should apply to the entire cost of the ticket, or just to a portion of the ticket that is designated as the cost to watch the game.

The rest of the price of the ticket can be viewed as payment for “luxury services” that teams provide to people who purchase higher-priced tickets.

These services can include items such as parking, better and more food choices, and for loge holders, an enclosed, climate-controlled space with a private bathroom.

Teams can take the position that those services are not part of the cost of admission to watch the game – and are therefore not subject to the admissions tax.

The nature of the disagreement between the city and the Browns is not spelled out in the Settlement Agreement, but the agreement’s proposed resolution is complicated by the fact that it references the Cleveland Cavaliers regarding how much tax should be paid on premium seats.

It states that “a similar issue is capable of arising” with the Cavaliers, and that “Cleveland will attempt to resolve the Issue with the Cavaliers.”

That was news to the Cavaliers, who say they were unaware that their name was used in the agreement between the city and the Browns until after it had been signed.

The agreement goes on to say that if a resolution is reached with the Cavaliers, “the Browns and Cleveland will prospectively apply such Resolution” for tax purposes.

“Prospectively” generally means “going forward, or “from now on” – meaning the Browns may well never have to pay any back tax that might otherwise be owed.

What’s more, the Cavaliers say they have not had any issue regarding how much they pay in admissions tax on loges, nor have they been asked to negotiate a newer or different calculation for that tax payment.

Since the agreement basically says the Browns will live with any new agreement the Cavaliers reach with the city, there is unlikely to be any change soon – unless the city decides to take a new approach to this tax question.

The Browns declined to do an on-camera interview, but in a statement, the team writes of the “great benefit” that the admissions tax has brought to the city.

The statement continues in part:

“The City has approved and applied admissions tax consistently for the last 20 years. We remain committed to honoring our responsibility to pay admissions tax as we have since our franchise returned in 1999.”

The city also declined to do an on-camera interview, but Mayor Frank Jackson’s media relations office said, in part, in a statement that “admissions tax for premium seating can be subject to different interpretations.”

“In our discussions,” the city continued, “we have sought a uniform approach after which we will proceed.”

Some people we spoke with, including an individual taxpayer, and two co-owners of a small business, questioned whether the Browns are being treated differently than they have been.

“It does stick in your craw a little that those a little more powerful than us are able to work out deals,” said Mark Leddy, co-owner of the Beachland Ballroom.

The Beachland, a smaller music venue, is the anchor of an emerging Waterloo Arts District that holds promise for restoring some of the glory of Cleveland’s Collinwood neighborhood.

Several years ago, as it was trying to gain its footing, the Beachland fell behind on its admissions tax payments to the city – the same tax that’s in dispute with the Browns over premium seats at the stadium – though, because the Beachland does not offer “premium seating”, there was no dispute or any discussions about how the admission tax applies.

Instead, the city aggressively sought the money it believed was due from the Beachland’s owners.

“We got no sympathy whatsoever,” Leddy said.

While Cleveland calculated the money owed at more than $100,000, Leddy and co-owner Cindy Barber said the city originally told them that, with penalties and interest, the amount approached $400,000.

“Having to pay a lump sum,” Barber said, “we would have just gone out of business. It was much too much for our little mom-and-pop shop.”

What’s more, the city said that Barber, as the finance officer for the Beachland, could be held personally responsible.

“She was petrified,” Leddy said.

“If you feel like they’re going to take all your personal property,” he added, “that raises the stakes substantially.”

Leddy and Barber eventually agreed to pay close to $140,000 over several years in back admissions tax payments.

In terms of the dollars, the stakes are likely much higher with an NFL team like the Browns.

In Chicago, Cook County sued the Chicago Bears over how little tax the Chicago Bears paid on loge tickets at Soldier Field.

In essence, the Bears argued that there was a distinction between how much of the ticket’s value was for watching the game (which the team agreed was subject to tax), and how much was for luxury services that the team argued should be deducted before any tax is applied.

According to an Illinois appeals court decision, the Bears valued the tickets at $104 apiece for tax purposes.

The appeals court placed the value at $750 a ticket and, after applying interest but allowing for some deductions, ordered the Bears to pay back more than $5 million in back taxes just for four years.

In Cleveland, the city often takes people to court not for owing millions, but for owing hundreds of dollars.

As he gets set to begin a hearing for people who are charged with owing back municipal taxes to Cleveland, Judge Ron Adrine tells the defendants, “you may not be aware that the charges you face today are criminal violations.”

Judge Adrine has to let people know their rights, and what they may face, which include “penalties up to $1,000 fine or up to 180 days in jail – or both.”

One of the people in court on this day was a health care worker who owed back municipal taxes. She agreed to a payment plan to pay $200 a month for several years to resolve her issue.

She told us she didn’t believe the agreement that the city signed with the Browns was fair to someone like her.

“I work hard, if not harder than they do,” she told us, “and if I got to pay it back for four or five years, so should they.”

Councilman Polensek scoffed at the reasoning that says you can separate a portion of a ticket as being paid for luxury services, as opposed to attending the game itself.

“It wasn’t for the event, why would I go?” he asked. “To sit in an empty arena?”

“These are the premium seats, these are the loges,” Polensek added, “and they’re not required to pay taxes on the tickets, or just a portion?”

“I mean, come on,” he said, “when is enough, enough?”