Bar cover charges net big bucks; some question whether funds reported

New Year's Eve is boom time for cover charges.

Big bars in Iowa City, like the Summit and the Union, will be charging $5 at the door early tomorrow night, and the price will slide upward as the evening wears on - up to as much as $20, $30 or even $40 by midnight.

Bar cover charges are rare in Cedar Rapids, but in Iowa City they are a way of life.

The Iowa City Council added the issue to its legislative priority list, suggesting the state look at whether proper oversight is in place to ensure bars are reporting all their cover charge revenue. Council members and others in the community suspect some bars aren't reporting all the income and fear the cover charge may be subsidizing lower drink prices, encouraging more drunkenness.

“Empirical data have not been collected on either issue,” council member Matt Hayek said. “The intent of that was to flag the issue for our local legislative delegation. The city did not request specific action from the state.”

Bar owners insist they forward sales and income taxes to the state of Iowa, critics point out bars don't give receipts and patrons keep paying to get in.

Brett Thomas, owner of the Cedar Rapids Piano Lounge and Iowa City Piano Lounge, charges $5 at the door on Friday and Saturday nights in Cedar Rapids and uses the take to pay for dueling piano acts from all over the country - to fly them in, put them up in a hotel and pay them to play for the weekend crowds. Entertainment like that can be expensive.

“Our goal every weekend is $1,500 per night (in cover charges),” Thomas said. “It all goes to the entertainment, believe me.”

One advantage of charging cover, Thomas said, is that it brings in a more polished crowd.

“It keeps the riffraff out,” Thomas said. “A lot of people don't want to throw down $5 in Cedar Rapids.”

In Iowa City, where thousands of students pay cover every weekend at giant establishments with giant dance floors, a cover charge is the price of admission to the downtown bar scene. Sometimes, it gets patrons into bars with drink specials, exactly what the council fears.

“I have a general opinion that cover charges are bull, but if there's a deal, then why not pay,” said Tyler Schultz, a University of Iowa senior who lives in Iowa City. “Initially, I think people pay cover for the atmosphere, but then it becomes sort of the standard. People don't think twice.”

Cover charges are collected, and should be reported, the same as any cash transaction, said Greg Stokke, a program manager for taxpayer services at the Iowa Department of Revenue. Stokke sees no difference between cover and admission charges.

If a bar charged a $1 cover and the sales tax was 6 percent, then “essentially 94 cents of that would be the sale and 6 cents would be the tax,” Stokke said.

Businesses aren't required to print receipts for those transactions, but Stokke said bars that charge cover should post a sign telling patrons that sales tax is included in the charge.

Mike Porter, who owns three downtown Iowa City bars, including the Summit and One-Eyed Jakes, told the Daily Iowan, the university's student newspaper, that all his profits from cover charges are correctly reported to the state.

“If we charge a dollar at the door, 7 cents goes to the state,” Porter said. “If we aren't reporting our income, we can get shut down. That's tax fraud.”