Tiki bar tax dispute could set legal tone

A dispute over whether or not to tax a tiki bar on county property could have far-flung legal implications for county-owned land.

The Pier Restaurant and Tiki Bar is a seasonal restaurant on Playland”™s boardwalk within the borders of the city of Rye, but on land owned by Westchester County government. Historically, county-owned parcels are exempted from paying taxes, but Rye started sending bills to the restaurant in 2011 when the city”™s assessor ruled the tiki bar shouldn”™t be exempted since it was a for-profit business.

Jonathan Kraut, attorney for the restaurant, has yet to have his day in court, but said his client is appealing the property tax. Kraut called his client”™s action “predictable” based on the lease between the restaurant and Westchester County. During negotiations both sides formulated the lease and determined an annual licensing fee to be paid by the restaurant based on the then-exempt status of the property, Kraut said.

He said the city assessor”™s decision was simply a way to find a new revenue line for the city.

“Municipalities are looking for new money any way they can,” said Kraut, of the White Plains firm Friedman Harfenist Kraut & Perlstein L.L.P. “Unfortunately in this instance they are looking at a tax-exempt use of a property. What makes it sadder is now they”™re using taxpayer money (in the legal proceeding).”

Several factors are at play beyond the specific restaurant”™s status, namely what effect it may have on other private enterprises on county land. On Playland property alone, there are numerous concession stands and amusements operated by private companies, none of which pay regular property taxes but rather operate on leases and license agreements. Tenants include restaurant chains such as Burger King. The county is expected to turn over operations of the park to a management company that wants to bring more restaurants to the boardwalk, and some county officials wonder if that means the management company and new restaurants will similarly face a revocation of any tax exemptions.

Although a concession stand has operated on the parcel for years, in 2010 the tiki bar opened after extensive renovations. Since its opening, the restaurant has attracted big crowds and night life, much to the chagrin of residents nearby who say they can hear live music from the open-air restaurant carrying across Playland and into the coastal neighborhoods outside of the park.

Neighbors also had issue with an influx of traffic and parking problems they blamed on Seaside Johnnie”™s, owned by the same company as the tiki bar and on public land in Rye Town Park just down the boardwalk from Playland. In 2011, City Assessor Noreen Witty put on the tax rolls the two restaurants and a holistic healing center called the Wainwright House.

All three of those properties contested the assessor”™s decision at a special meeting of the city”™s Board of Assessment Review in 2011. The board reinstated the tax exemption of the Wainwright House, which had initially drew scrutiny for hosting weddings and other events. The restaurants were not granted a reinstatement of the exemption and two separate court proceedings were launched against the city. The appeal by Seaside Johnnie”™s was taken by the Rye Town Park Commission, which oversees maintenance of the park. The tiki bar”™s appeal, though, had to be taken on by the restaurant itself when the county Board of Legislators declined to authorize a suit to contest the assessment.

A judge ruled in favor of the restaurant in the Seaside Johnnie”™s proceeding last summer, but the city of Rye recently appealed that ruling. Court dates have yet to be scheduled on the tiki bar matter, though attorneys expect their positions to be heard as early as late summer.

The two leases are slightly different. The Seaside Johnnie”™s lease more clearly states that the owner and not the lessee would have to pay any property taxes levied for the property, but the tiki bar”™s deal is more ambiguous. There are not direct provisions about who is on the hook for the charges, according to Rye City Mayor Joe Sack.

“It doesn”™t matter to me who pays the bill so long as the bill gets paid,” Sack, himself a lawyer by trade, said in a recent interview.