CITY AGREES CLUB MADONNA DOES NOT OWE RESORT TAX

The City of Miami Beach has conceded that Club Madonna does not owe resort tax
revenue, a reversal from the city manager's threat two months ago to shut down the
club over his claims that the club was somehow delinquent.
In a two-page legal opinion addressed last Wednesday (March 26) to City Manager
Jimmy Morales, Miami Beach City Attorney Jose Smith concluded that the club is
not liable for resort tax as it currently operates.
This acknowledgment is a 180-degree turnaround from Morales's January 27 letter to
the club. In it, Morales said he had determined that the club had failed to pay resort
tax levied on the sales of club-sold beverages and was therefore in violation of city
code and could face closure.
Smith's memo to Morales is striking in that it glaringly reveals that the city manager
apparently issued his letter to the club without first having run it by the city attorney:
As you may recall, our office did not review or have prior knowledge of your letter
to Club Madonna, Smith reminded Morales.
Smith also revealed that top city leaders including Chief Financial Officer Patricia
Walker, Code Compliance Division Commander Hernan Cardeno, and Chief Deputy
City Attorney Donald Papy discussed the club's resort tax matter in the wake of
Morales's January 10 administrative order closing the club over allegations of an
underage teen having been forced to perform in the club by her captors. Club
Madonna is currently suing the City for its and Morales's actions in that closing.
The discussion of Club Madonna's taxes came up because the City was defending a
lawsuit involving a resort tax dispute with a different club (Chakra 5), Smith wrote.
In his memo, Smith reported that Walker recalled a 1997 conversation with then-City
Attorney Murray Dubbin about the non-applicability of the resort tax to
[Madonna].
She recalled that [Club Madonna president and CEO] Leroy Griffith had stated at
the time that no food or drink was being sold, Smith wrote, and that everything was
included in a 'cover charge'. [Walker] recalled Dubbin saying to her, 'forget about it'
(regarding the collection of resort taxes).
Smith's memo goes on to mention that Walker had learned through a Google search
that Griffith had applied to the State Division of Alcoholic Beverages & Tobacco for
the right to allow club patrons to bring alcohol into the club.
What Smith's memo neglects to clarify, however, is that this was an old petition from
2011, not a recent application.
Walker, according to Smith, also believed that Club Madonna may be selling hot
foods (such as hors d'oeurves).
Walker is incorrect; the club does not sell and has never sold hot foods.
A club attorney, Richard Wolfe, wrote to Morales on February 7 that our client
openly admits to the sale of non-alcoholic beverages and soft drinks to patrons [....]
That has been known to the City for more than 20 years, during which time the City
has never claimed that the resort tax was due, until the recent dispute with the City
and our client has escalated.
Club Madonna spokesman Charles Branham-Bailey issued this statement today:
Club Madonna has suffered unrelenting aspersions and allegations from City Hall
ever since the city manager's improper and unwarranted closure of the club on
January 10. This the allegation that we were delinquent on taxes that we have never
owed has been but the latest of these.
It is disturbing that top leaders at City Hall were not on the same page with one
another, and were jumping to unfounded conclusions, with some not knowing what
others were saying, doing, implementing or authorizing or whether any of it was
even factual or legal. Alarmingly, this is a case of the right hand not aware of what the
left was doing.
We are satisfied to have been ultimately proved correct in our rebuttals to Mr.
Morales's allegations. Both a club attorney and our accountant addressed letters to the
city manager in February affirming that we are not classified as a business that is
required to pay resort taxes, and thus have never owed any.
We are pleased that City Hall has recognized and accepted our claims as correct. We
expect that this legal opinion means Mr. Morales retracts his threat to go after us and
attempt to shut us down again, over an issue that never was one and never should
have been elevated to the level of one.
We are displeased, however, that his January 27 allegations of tax delinquency and
his threat to shut us down have demeaned and defamed us in media reports about this
matter. His making an issue of something we never owed and threatening to shut us
down over it without having carefully researched the facts of the matter was
totally uncalled for and, in retrospect, erroneous, unwise, and beneath the dignity of
his public office.
Club Madonna has been, in its twenty-year history on the Beach, a business that has
faithfully paid its taxes. In that time, we have employed countless local residents. We
have been and continue to be a powerful generator of economic prosperity and
stability to neighboring businesses on Washington Avenue. Ask any of those
businesses about the benefit of having us as a neighbor and they will attest to this.
When we are open, they benefit. When we were closed by the city manager's order
for 17 days in January, they suffered tremendously.
We have also benefited untold distributors, suppliers, laborers, taxi drivers, and
countless others.
In twenty years, we have generated more tax revenue for this city that we love than
have many of those who would wish to put us out of business.
"We also proudly possess one of the lowest incident rates of any nightclub or
entertainment business in South Beach. It's an indisputable fact: City and police
crime stats bear this out year after year.
We hope that Mayor Levine and city commissioners will take note of the reckless
and rash words, orders, and threats that have emanated from some departments at
City Hall in recent months, and take corrective measures, up to and including
replacing top officials. We expect our city leaders to apply the law equally, fairly, and
correctly, and not abuse the power of their offices by issuing arbitrary closings and
unjustified threats that hinder businesses and residents alike.
We are grateful to have gotten this legal opinion, but it was like pulling teeth to get
the City to finally issue it and own up to its error. It took two months for the city
attorney to issue it following the city manager's January letter to us. It shouldn't have
taken more than two days. No Miami Beach business should have to endure such
callous treatment from our public servants at City Hall. Period.
Griffith, whose birthday coincided with Smith's letter, pronounced the City's ruling a
welcome birthday gift.

TO: Jimmy Morales, City Manager
FROM: Jose Smith, City Attorney
DATE: March 26, 2014
SUBJECT: Club Madonna (Resort Tax)
You have requested a legal opinion in regard to a letter dated February 7, 2014,
addressed to you (copy attached), from Richard Wolfe, Esq. on behalf of Club
Madonna. In his letter, Mr. Wolfe questions the application of the resort tax to the
club's operations. His letter was in response to your letter to Club Madonna dated
January 27,2014 (copy attached).
As you may recall, our office did not review or have prior knowledge of your letter to
Club Madonna. The question of resort tax and Club Madonna was first discussed
(after Club Madonna was closed by your administrative order), with Patricia (Trish)
Walker, Jim Sutter, and Hernan Cardeno because the City was defending a lawsuit
involving a resort tax dispute with a different club (Chakra 5). While Trish advised
that Club Madonna was not paying resort taxes, she also recalled a conversation in
1997 with former City Attorney Murray Dubbin about the non-applicability of the
resort tax law to the Club. She recalled that Leroy Griffith had stated at the time that
no food or drink was being sold and that everything was included in a "cover charge."
Irish recalled Dubbin saying to her, "forget about it" (regarding the collection of
resort taxes).
Irish further advised that a recent Google search showed that Griffith had applied to
the State alcohol division to allow Club Madonna patrons to bring alcohol into the
club and mentioned that he was selling non-alcoholic beverages. His request was
denied by the State. Trish also believed that Club Madonna may be selling hot foods
(such as hors d'oeuvres). Don Papy asked Trish, Jim, and Heman about what
procedures the City follows for determining and computing resort tax. He was told
that a code compliance inspector would visit the premises, check the licenses and
determine whether they were appropriate and whether a violation of the resort tax or
any other violation was occurring. lf5O, a notice of violation would be issued to the
business which could request a hearing and appeal to the Special Master. If the Special
Master concluded a violation occurred, he would order the business to obtain the
proper license and if taxes were owed, Finance and Internal Audit would determine
the amount. If there was no violation, the citation would be dismissed. Your
administration was therefore advised to follow normal procedures in the case of Club
Madonna especially in light of pending litigation, including the lawsuit contesting of
the administrative closure of the Club.
Following your January 27, 2014 letter, the City's outside counsel received a frantic
telephone call from Club Madonna's attorneys asserting that no resort tax was due.
Indeed, their accountant recalled an old legal opinion from the City that Club
Madonna was not subject to resort tax based on the nature of its of operation.
An exhaustive search of old City Attorney Opinions was thereafter conducted by my
staff. We found a 2001 legal opinion (copy attached) regarding another club owned by
Griffith. In that opinion, prepared by the late Larry Levy and then City Attorney
Murray Dubbin, they concluded that based on the facts and particular circumstances
involving that club (only had a "cover charge" and did not sell alcoholic or other
beverages or food), the resort tax would not apply. As you can read in that opinion,
the conclusion was based on an interpretation of the enabling legislation, Laws of
1967, and state regulations. Simply stated, in order to be responsible for resort tax, a
business operation must be licensed by the state Division of Alcoholic Beverages and
Tobacco or the Division of Hotels and Restaurants. Mr. Wolfe's letter correctly relies
on the exemptions dealing with the sale of non-alcoholic beverages, the operation of a
theater and the foods customarily prepared in theaters.
Therefore, under our 2001 legal opinion (which I hereby re-adopt as it correctly states
the applicable law), unless Club Madonna is subject to licensing under State law by the
Division of Alcoholic Beverages and Tobacco or the Division of Hotels and
Restaurants, it is not liable for resort tax under the facts presented in Mr. Wolfe's
letter. Of course, if the facts stated are not accurate, Club Madonna could be
responsible for resort tax.
In conclusion, going forward, the City should faithfully heed the advice given in the
2001 legal opinion:
Thus, businesses may shift being exempt from Resort Tax to being
subject to it, and vice versa.
There is a dual licensing by the Division of Hotels and Restaurants and
the Division of Alcoholic Beverages and Tobacco. However, the Resort
Tax is clearly applicable to any business that is subject to the jurisdiction
of either of those agencies.
The Code Compliance Department of the City should, whenever it visits
any business that sells any type of food products, check the business's
State of Florida licenses, and make the information available to the
Resort Tax section in the Finance Department. This will assist in the
Finance Department in verifying that all business that are subject to
Resort Tax are properly registered and paying the Resort Tax, and that
those that are not subject to it have not registered in error. The bottom
line is that the City must review each establishment individually to
determine which licenses or permits are required from the State of
Florida in order to operate its business. The language of the Enabling
Act is clear that the Resort Tax is applicable to any establishment that is
regulated by either of the Licensing Divisions. The table below is
appended to provide some guidance, but each establishment's licensing
and operation must be individually reviewed.