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Fell Phillips Lytle LLP Via Hand Delivery July 31, 2018 Legislation Committee City of Buffalo Common Council Attn: Gerald Chwalinski, City Clerk 1413 City Hall 65 Niagara Square Butfalo, New York 14202 Re: Proposal to Adopt Chapter 346 of the Code of the City of Buffalo; the Public Facility Sports, Theater and Artistic Revitalization Fund (Ticket Tax Legislation”) Dear Council President Pridgen and Members of the Legislation Committee: This Firm represents the interests of Shea's O/Connell Preservation Guild, Ltd.; Kleinhans Music Hall Management, Inc.; Bison Baseball, Inc.; Be Our Guest, Lt Hockey Western New York, LLC, d/b/a the Buffalo Sabres; Western New York Arena, LLC, d/b/a Key Bank Center; and Western New York Lacrosse, LLC, d/b/a the Buffalo Bandits, with respect to the enclosed Ticket Tax Legislation, proposed for enactment as Chapter 346 of the Buffalo City Code which has been referred to the Legislation Committee for consideration, Our clients operate or conduct events in venues (’ Venues”) identified in proposed Buffalo City Code, Chapter 346, § 346-2 ("Ticket Tax §__”), under certain leases and/or other contracts that they previously negotiated with the City of Buffalo, As “Operators” (defined at Ticket Tax § 346-3) that would be liable for the charges due for payment into the proposed Ticket Tax (see id. § 346-4(D)), our clients have a significant interest in the Ticket Tax Legislation. The Operators strongly oppose adoption of the Ticket Tax Legislation, because it would unlawfully impose an unauthorized tax, and because the Operators’ various leases and/or other contracts with the City of Buffalo prohibit it. Further, the tax would not be in the best interests of the community at large, or the City of Buffalo in particular. The Operators urge the Legislation Committee to table or recommend the denial of the [ell Legislation Committee July 31, 2018 Page 2 Ticket Tax Legislation to avoid irreparable injury to the Operators’ businesses and to the City’s economy. L ENACTMENT OF THE TICKET TAX LEGISLATION WOULD BE UNLAWFUL. Because the stated intent of the Ticket Tax Legislation is to generate funds to cover general government function expenses, it would impose a tax, nota fee. Because no enabling State legislation authorizes the Ticket Tax, it fails as a matter of law. A. The Ticket Tax is not authorized by State law. ‘The New York State Constitution vests the power to impose taxes exclusively in the State Legislature. Municipalities have no inherent taxing power. They may only tax to the extent the State delegates them power to do so. The State Legislature, by its enactment of Article 29 of the Tax Law, allows cities of more than one million people to tax admission to certain public performances (see N.Y. Tax Law § 1201(j)), but has not granted this authority to cities like Buffalo with a population under one million. See id. § 1203(a) (permitting taxation on limited items, not including admissions to entertainment events). To date, the City has not identified how the State has delegated any power to the City to impose the Ticket Tax. Absent the enactment of appropriate enabling legislation by the State, the City of Buffalo lacks authority to impose or collect the Ticket Tax from the Operators. B. The Ticket Tax is not a “fee” allowed by law The purpose of the proposed Ticket Tax Legislation is to generate funds to cover the cost of “the public fisc in the form of additional police presence and other infrastructure and maintenance costs needed to ensure the enjoyment, safety and well-being of event attendees.” Proposed Chapter §364-1. General police “presence” is a general reli Legislation Committee July 31, 2018 Page3 government function, as is maintaining “other infrastructure.” Ticket Tax § 364-11 There is also a rebate for City residents since, as explained by Council President Pridgen to the Buffalo News after the Council referred the Ticket Tax Legislation to this Committee: “So it was the opinion of several council members... that the people in the City of Buffalo who already pay should not be double-taxed for that service.” While a “fee” may be charged by a municipality in connection with the exercise of its power or to fund the direct cost of the municipality's provision of services, (like the City’s garbage user fee), to be valid, it must meet certain requirements including that it is limited to covering actual, direct expenses and is not to raise revenue. The Ticket Tax is clearly an attempt by the City to raise revenue. By basing the Ticket Tax on the value ofa ticket on a sliding scale (the more the cost of the ticket, the more the Ticket Tax) rather than the cost of services provided by the City for each ticket, the Ticket Tax is not a “fee” allowed by law, In the case of Shea's Performing Arts Center (“Shea's Theater”), for example, Shea's Theater events do not generally give rise to any direct costs to the City. While the City has estimated that it expends approximately $75,000 per year in connection with that Venue, it is estimated that the Ticket Tax will generate approximately ten times that amount ($750,000) in revenue annually from Shea’s Theater. This stark disparity exemplifies how the Ticket Tax would impose a charge on theater, sporting, and other entertainment attendees in order to offset the cost of the City’s general governmental functions, such as pavement maintenance, snow plowing, and police services, that are not based on the Operators’ events. In doing so, the Ticket Tax falls outside the definition of a “fee,” and can only survive if it is a tax authorized by State law. Itis not. I THE TICKET TAX IS CONTRARY TO THE CITY'S AGREEMENTS WITH THE OPERATORS The City bargained with each of the Operators for leasehold rights to the facilities listed in Ticket Tax § 346-2. In certain leases and/or other contracts (“Agreements”), the City 1 Interestingly, while part of the justification for the Ticket Tax Legislation is to cover City expenses associated with maintaining the Venues, the Operators spend the vast majority of funds necessary to do so, In fact, in some instances, KeyBank Center, for instance, the City has no role funding the maintenance or repair of the Vente.