Century Ballroom’s “Sweet Sixteen” anniversary celebration will be a bittersweet affair.

The Saturday night event is also a fundraiser, to help the popular Capitol Hill dance venue pay a large past-due tax bill.

Owner Hallie Kuperman said she will “do a big ask” of her social-dance customers to help her raise $92,000.

It’s an amount she never expected to have to pay, she said, because she didn’t know she was supposed to collect sales tax on the cover charge.

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Kuperman is not alone. Several Seattle nightclubs have also been hit with large bills after audits by the state Department of Revenue (DOR) revealed they weren’t paying the tax either.

Under state law, tickets or cover charges for movies, concerts and plays are exempt from sales tax. But if a business offers customers “the opportunity to dance,” tax must be collected.

Owners of Century Ballroom and nightclubs should have been aware of the tax, Department of Revenue spokesman Mike Gowrylow said.

A Thurston County Superior Court judge upheld the tax in 1971, and DOR has repeatedly explained it in publications and on its website, Gowrylow said. “It’s the obligation of a business to learn, understand and comply with the tax laws.”

After routine audits in 2009 showed some businesses weren’t complying with the law, DOR audited 44 Seattle-area nightspots that serve alcohol. Of the 13 that had cover charges, eight were correctly collecting tax and five weren’t, Gowrylow said.

Responding to an uproar over the audits, state Sen. Ed Murray, D-Seattle, and three other senators have introduced a bill that would exempt dance-related cover charges from the sales tax.

Murray said there is confusion over when a musical performance is considered a nontaxable concert and when it’s a taxable “opportunity to dance.”

Murray, recalling a concert-hall performance in which people danced in the aisles to the music of the Irish band The Chieftains, asked: “Did that become an opportunity to dance, and should we go back and tax them? I just think it’s a really arbitrary way to try to apply a tax.”

DOR’s Gowrylow said a concert is primarily a spectator experience, even if some people dance in the aisles. An event becomes a dance opportunity if there’s a dance floor, if dancing is promoted or there is an area where dancing “customarily occurs.”

Tractor Tavern owner Dan Cowan said he hadn’t heard of the tax during his 30 years in the business, and was “blindsided” by an audit that showed he owed $250,000, including penalties and interest. DOR agreed after negotiations to lower his bill to $91,000, Cowan said.

“It’s pretty much wiped out my retirement,” Cowan said.

At a hearing before the Senate Ways and Means Committee on Thursday, Cowan supported repeal of the tax, as did Craig Jewell, co-owner of the Wild Buffalo in Bellingham. Jewell said the nightclub was paying sales tax on cover charge when he bought it four and a half years ago, and, “It took me about a month to find out no one else in the entire state was paying it.”

Cowan and Seattle music promoter Dave Meinert said DOR’s enforcement actions have created an uneven playing field among nightclubs because some that haven’t been audited aren’t paying the tax and have a competitive advantage over those that are.

For Century Ballroom, there’s no question it’s providing a dance opportunity. That’s its purpose (although dance lessons are tax-exempt).

But saddled with an unexpected bill — knocked down from $250,000 to $92,000 — Kuperman said she had no choice but to ask customers for help if she was to stay in business.

“We’re not sitting on the money to give back taxes to the Department of Revenue,” she said.

Kuperman already has made a dent in her fundraising goal, taking in more than $20,000 in checks and online contributions.

About a third of those gifts have come from dancers out of state, some living abroad, Kuperman said. “It is so moving and inspirational and profound to see the type of support the dance community has for one another and for what we do as a mode of mental and spiritual healthfulness.”

Keith Ervin: 206-464-2105 or kervin@seattletimes.com