We are not amused

Lawrence Solomon
National Post
May 22, 2001

It isn’t funny. Amusement taxes – they’re also known as entertainment taxes and admissions taxes – harm culture, harm sports and recreation, harm the private sector, harm cities and harm the quality of life.

Ontario has had them almost continuously since 1916, even during the Great Depression, on cinemas, theatres, sporting events and concerts. Its amusement tax was a crushing 20% when a post-war version was levied in 1948, before the era of big government and big taxes. It later dropped to 10% in 1955 and has remained there since, even though the province created a retail sales tax in the 1960s that pegged the general retail sales tax at 5%. While the provincial sales tax climbed to its current 8%, and income tax changes frequently, the amusement tax stayed frozen in time, like some archaic law that remains on the books without anyone in government quite knowing why. The federal government and most provinces have abandoned this tax. Not the largest province in the land.

Why was this particular tax on places of amusement first introduced? "Oh, I can’t tell you, that was so long ago," states Nalini Karna, the manager of tax policy on sales taxes at the Ontario Ministry of Finance. How much money does this tax bring in? "We don’t have any way of knowing what the revenues are," she says.

Vendors who fall under the 10% tax – say a movie theatre – sell not only admissions but also candy bars and soft drinks, which are taxed at a lower rate. "We don’t know, and we don’t ask them to itemize that out."

Why would the government not ask vendors to itemize a large tax that they collect? "In the interest of simplicity," Ms. Karna states, presumably referring to a lowered burden on government. She couldn’t mean that vendors are spared red tape. Because vendors are subject to audit, should the government ever care enough to ask, they must in their own books diligently keep a detailed itemization of all sales taxes, including the amusement tax. To add to the red tape, the government has created a myriad of rules that care whether a restaurant has a dance floor or serves alcohol, whether a club has live or recorded performances, whether the performers are foreign or not, whether a profit is made.

Amusement taxes exist for a variety of reasons. Some bureaucrats see them as a form of luxury tax that penalizes frivolous activity. Listening to the sound from a Stradivarius doesn’t contribute anything to the economy, this reasoning goes, unlike purchasing a lump of coal or some consumer product. Others argue that amusement taxes are disproportionately borne by tourists, who would otherwise use provincial facilities without paying their share of taxes.

These arguments have it wrong, the Ontario Committee on Taxation’s landmark 1967 report determined: "Any tax on retail sales should be part of a general retail sales tax." All else being equal, a dollar spent on a cultural activity is worth no less to the economy than a dollar spent on a lump of coal or other hard good. But not all else is equal, due to unintended costs or benefits – what economists call "externalities." Burning that lump of coal creates soot that soils neighbouring homes, for example, foisting maintenance costs on innocent third parties. A place of amusement, on the other hand, tends to create positive externalities – they inspire, motivate, create a sense of community.

Neither do tourists deserve to be penalized, says the 1967 report. Tourists contribute far more to society through the taxes imbedded in their purchases than they cost society in their use of public services. For reasons such as these, the report said, "we reject the notion that a special tax should be levied on certain forms of amusement and entertainment. Levied at a rate higher than is applicable to most consumer expenditures, the tax is unfair; the exempting of many events similar to those that are taxed makes it inexcusable."

Inexcusable, but not inexplicable. Amusement taxes are really hidden taxes on city life and those who revel in it. Cities house the great majority of entertainment venues. In cities we find the sports stadiums, night clubs, opera houses, symphonies and rock concerts that make the cultural industry one of Canada’s largest, far larger than any resource industry. Even movie theatres, the one venue commonly found in small towns, are frequented far more often in big cities than small towns – rural households spend less than half as much on movies as do those in cities. Through its amusement tax, the province silently picks the pockets of those who patronize sports and cultural establishments in a few large urban centres, then redistributes the monies to the less populated areas, which elect a greater share of politicians.

Knowing that, what else does the province need to know?

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