Fighting
Admissions Taxes With Common-Sense Economics
by G. Kendrick Macdowell
NATO General Counsel &
Director of Government Affairs
State budget woes – fueling the common
wisdom that misery loves company – tempt lawmakers
to target people having fun. You know, people going to
movies, plays, concerts, sporting events, and other amusements.
So with state budget woes common across the nation, it’s
no surprise we’re seeing a spike in proposals to
hike admissions (or amusement) taxes.
Admissions taxes – dubbed by the advocacy group FreedomWorks
as one of the “top 10 outrageous taxes” – force
cinema owners to fork over some percentage of ticket
sales to the state (or locality), in addition to the
multitude
of other taxes, exactions, and license fees they pay
for the privilege of showing movies.
Sometimes the train
just jets out of the station, and there’s
nothing you can do to resist another tax increase. But
if you have any opportunity to challenge an admissions
tax proposal, you should – and here are some
thoughts on strategies.
Critically Examine
the Stated Justification for the Tax Increase. Find
out why the state is seeking a tax
increase,
and how broadly the tax increase is intended. Sometimes
the stated justification for the tax increase can
itself be attacked. Sometimes the premise is simply wrong.
Sometimes the tax applies more widely than necessary,
sometimes
too narrowly.
Be Respectfully “Mad
As Hell.” Remember
that lawmakers instinctively avoid pain. If lawmakers
are scouting
for a pain-free revenue source, your meekness may
be just the ticket to a tax increase. But frame
your outrage respectfully.
Lawmakers are just doing their jobs as stewards
of the treasury. Help them to realize that a tax increase
on amusements
will have political consequences, that the proponents
of such an increase will become known to movie
patrons,
and
that you, as a movie theatre owner, will enthusiastically
assist in this civic education.
Convince Lawmakers
That a Tax Hike Compels a Ticket Price Hike – and
That Means Less Money for the State. Few
people outside the industry understand the peculiar
economics of the movie theatre business. You might be
surprised at
the impact of some basic economic education in
theatre operations. Why, for example, does it follow
that a tax
increase compels a ticket price increase? Didn’t
theatre owners make gobs of money on “Revenge of
the Sith”?
The popular perception
of movie theatres basking in the profits of popular blockbusters
is a myth.
For
film rental,
studios charge a substantial percentage of the
box office gross. At the beginning of the rental
period
(when attendance
is at the highest), the studio take is likewise
at its peak. For blockbusters that make a big
opening-weekend splash then disappear from screens quickly,
well,
you need to sell a lot of popcorn.
Typical state lawmakers
would not know anything about this arrangement. Educate
them.
In fact, the movie
theatre business is an industry of tight profit margins – which
is especially true for the smaller cinema owners, whose
solo
operations in small towns
are most vulnerable to cost hikes. Lawmakers
might be most nervous about sacrificing these struggling
entrepreneurs
on the revenue altar. For many reasons, old
and
new, cost increases cannot simply be absorbed.
A tax hike compels
a ticket price hike. That price hike
reduces attendance. If the price
hike is tied
to some
enhancement of the moviegoing experience
(better seats, better sound
or picture quality, and so forth), a price
hike is more easily justified and accepted
by patrons.
A
tax increase — which
confers nothing of value to movie patrons — and
its corresponding ticket price hike will
be resented by patrons.
We know — as a standard economic assumption — that
higher ticket prices cause more people
at the margin to opt out of purchasing
movie tickets. That standard
economic
assumption is even more pronounced when
the product or service is (a) non-essential;
(b) easily substituted
with
some other product or service that addresses
the demand; and (c) consumed substantially
by persons
with less disposable
income. All three amplifiers are true
for movie tickets.
Movie theatres now
confront more competition from more sources than ever
before. If
the relevant market is
entertainment, then the competitive
field is truly
vast. But even as
to movies, consumers may purchase DVDs,
watch television, or subscribe to pay-TV
or video-on-demand
services.
Indeed, even as to new releases, the
window between theatrical
release and DVD release is steadily
shrinking. In other words, consumers can often see
new releases on DVD
within mere weeks of theatrical opening.
Movie theatres
that
do
not operate as “first-run” theatres,
typically small businesses, are increasingly
competing directly with
DVD rental by the time they show a movie.
In such an environment, consumers can,
and will, react negatively to ticket
price increases.
Moreover, our patrons
are very sensitive to ticket price increases because
movie
theatres continue
to be one of
the most affordable out-of-home entertainment
venues available, and therefore draw
substantial numbers
of fixed- and lower-income
people. Three out of four families
with children attend motion pictures
as an
affordable form
of entertainment. Fifty-nine percent
of theatre patrons
have household
income under $60,000 and 27 percent
under $30,000.
Teens, a group
with limited disposable income, attend
films most frequently,
along with one in three individuals
over the age of 60.
So what? So fewer people
come to the movies? How is that relevant
to tax
policy? Here’s
where your message gets impassioned. Your
survival, after
all, is at stake.
• State Admissions
Tax Revenue. Obviously,
a higher tax on a reduced base yields little, or no,
net
revenue. If attendance drops as described, the state would see a steadily
declining source of revenue from theatre admissions.
• Related
Business Downturn. It
is the rare mall planner who
does not actively
pursue a theatre,
because theatres operate as magnets, and theatre patrons frequent
surrounding stores. Any downturn in theatre business
inevitably injures surrounding
businesses
as well. And that
means a further reduction in state tax revenue.
• State Sales
Tax Revenue. The
more lucrative tax, for the state, will typically be
the sales tax on concessions.
An admissions tax mauls
this more lucrative tax with a vengeance. Reduced theatre
attendance inevitably reduces
concession sales because
there are fewer patrons – and
the remaining patrons will
likely be thriftier, and less
inclined to spend money on
concessions
after
spending more
money on tickets. Classic slaying
the goose that laid the golden
egg.
• Higher Unemployment. Theatres
forced to cut costs in the face of tax increase and its
attendant injury to attendance and concession sales would almost certainly
look
to scaled-back
workforces as one cost
measure.
•
Fewer Employment Benefits — Especially Health Insurance. Many
small businesses cannot afford adequate — or
any — health
insurance for their
employees, and those
that do provide such
insurance confront
a spiral of cost
increases. When cost
containment
becomes compelling,
small businesses are
routinely
forced to drop health
insurance.
More uninsured workers
pose special burdens
on both the
health care system
and the public treasury.
Size up your lawmaker.
Does he or she like
movies? Have
memories
of
the hometown
theatre?
If your
lawmaker believes
movie theatres are
worth preserving
as a shared
experience in American
stories,
then
an admissions
tax hike
endangers a valuable
community institution.
If your lawmaker
doesn’t
care, then at least you can
educate your patrons about
their elected representative. 
