Admiral Theatre files First Amendment suit vs. city, county over amusement tax
The Admiral Theatre is suing Chicago and Cook County over millions of dollars in back amusement taxes allegedly owed by the longtime adult entertainment venue on the city’s Northwest Side.
The lawsuit, filed July 29 in Chicago federal court, is challenging the 9% city and 3% county amusement taxes after the Admiral was socked with a $3 million assessment for underpayments over seven years.
At issue is whether requiring adult entertainment venues to pay the amusement taxes while exempting other small theaters is a violation of free speech.
“It’s as if this law was designed to put us out of business,” Admiral owner Sam Cecola, 75, said in an interview.
The dispute arose after an annual city audit found that Admiral had not collected the amusement tax for fees paid by customers to dancers, who are independent contractors.
“The city and county only advised us we were responsible for collecting from the entertainers seven years later, and sent us a bill,” said Cecola, who has owned and operated the Admiral for 31 years.
“We should be exempted from this tax as are all other small theater venues.”
The city has levied an amusement tax since 1947, while the county added its tax in 1997. The taxes are similar in scope, covering revenue generated on everything from sporting events and concerts to theatrical performances.
Chicago’s ordinance was amended in January 1999 to exempt live cultural performances at smaller venues. Three months later, the City Council tweaked the amendment to require adult
entertainment cabarets to pay the tax. Both Chicago and Cook County exempt theaters with fewer than 1,500 seats — other than adult entertainment venues — from the amusement tax.
The Admiral, which has about 250 seats, has collected and remitted amusement taxes on a “wide range of its income” over the years, the lawsuit alleges, including cover charges and its portion of private booth income and dance rentals. The payments amount to about $500,000 a year, Cecola said.
The Admiral did not collect and remit amusement tax on the portion of the dance income paid directly to the entertainers, the lawsuit alleges. Whether or not the tax burden falls on the dancers as independent contractors, the club received the bill.
Cecola said he had been negotiating with the city for about a year to reduce the back taxes owed, but discussions fell off during the onset of the COVID-19 pandemic.
Luke Lirot, a Florida attorney representing the Admiral, said the First Amendment challenge is similar to an argument the theater made in a lawsuit against the Small Business Administration when adult nightclubs were excluded from obtaining loans through the federal Payroll Protection Program. That suit was settled, and the SBA approved a nearly $400,000 PPP loan in June.
Exempting some theaters from the tax based on the content of the performances — differentiating between a ballet dance and a pole dance, for example — makes it unconstitutional, Lirot said.
“I don’t know if it was designed to be an additional burden to gentlemen’s clubs,” he said. “It certainly appears to be that way.”
Neither the city nor the county had seen the lawsuit as of Thursday afternoon.
“We have not received the complaint and have no comment on this pending litigation but will note that other challenges involving the amusement tax have been unsuccessful,” Department of Finance spokeswoman Kristen Cabanban said.
Nick Shields, a spokesman for Cook County Board President Toni Preckwinkle, said Friday the Admiral filed a protest of the county’s amusement tax audit, which is pending an administrative hearing. He declined to comment on the federal lawsuit. “We do not discuss the specific merits of an actively litigated matter,” Shields said.
This is not the first time the amusement tax has been challenged in court. In 2009, the Illinois Supreme Court upheld the ordinance against a First Amendment challenge filed by Pooh Bah Enterprises.
Pooh Bah was the former owner of the North Side gentlemen’s club now known Rick’s Cabaret. RCI Hospitality Holdings, a publicly traded Texas chain, purchased the club in 2018.
The Admiral and other Chicago-area strip clubs are also subject to a state tax on live adult entertainment.
Illinois implemented the so-called skin tax on strip club operators in 2013, charging $3 per customer or an amount based on gross receipts. For the fiscal year ending June 30, Illinois collected $426,000 from the state’s 55 adult entertainment venues, Department of Revenue spokesman Sam Salustro said Thursday.
Lirot said state skin taxes have also faced First Amendment challenges in recent years. Local taxes that penalize strip clubs are less common, he said.
The Admiral, a former 1920s-era vaudeville house, reopened late last month for weekend-only performances after being closed during the statewide pandemic shutdown. About 60 dancers have returned to work, Cecola said.
The club has implemented new health protocols, with temperature checks at the door, seating capacity reduced to about 45 patrons and dancers required to keep at least 6 feet of social distancing between themselves and customers.
Everyone is required to wear masks inside the club, including the dancers, Cecola said.
The restrictions have reduced the Admiral’s nightly revenue to about a third of what it was before the pandemic, Cecola said. The uncertainty of when or if business will return to normal makes the potential of losing the amusement tax lawsuit a make-or-break outcome, he said.
“We’ll just close the door,” Cecola said.
The lawsuit is seeking a refund of taxes paid, fees and costs associated with the lawsuit and a permanent injunction against the city and county from enforcing the amusement tax ordinances against the Admiral.