“Unofficial” Jazz Fest (and Arbitrage, and Licensing, and Taxes)

By: Shu-Yi Oei

blogged on Wednesday about taxes and tax enforcement at Jazz Fest, a.k.a. the New Orleans Jazz and Heritage Festival. Today’s follow-on post celebrates the phenomenon that I call “unofficial” Jazz Fest.

There’s “official” Jazz Fest, which is what happens after you’ve bought your ticket, gone through security, and are within the confines of the New Orleans Fairgrounds (where the Fest is held). And then there’s “unofficial” Jazz Fest, which is what goes on in the surrounding Fairgrounds neighborhood outside the Fest. [fn.1] As I described in Wednesday’s post, “official” Jazz Fest is a big deal, well organized, and highly regulated. The music programming unfolds on a tight schedule. Only approved food and craft vendors are allowed, and those vendors need to be properly licensed and pay some sort of booth fee in order to sell at Jazz Fest. The organizers exert significant control over the food items sold—the Jazz Fest website says that “‘carnival’ food items or beverages” will be not sold and that duplication of food offerings is minimal.

“Unofficial” Jazz Fest, as I call it, is what happens in the area outside the gates of the Fairgrounds. On Fest days, the neighborhood is transformed into its own unique microclimate of festive Festy-ness. Here, street vendors hawk wares such as hats, kooziessecond-line umbrellas, water, and art. no vending(There are “No Street Vending Allowed” signs posted, but those don’t seem to be given much weight.) Popup brass bands play for tips on the sidewalks. Some neighborhood residents hire bands and throw backyard parties, some of which you can attend for a fee (or, perhaps, crash unnoticed). New Orleans, like many other cities, has business licensing requirements, including mobile vendor licenses, and some of these vendors are clearly licensed, though it’s plausible that others might not be.

Many of these behaviors look like classic arbitrage: You can of course buy or enjoy most of those items or services in the official Jazz Fest, but they’re more expensive once you’re inside the Fairgrounds and committed to being there (general admission tickets allow single entry only). This creates obvious opportunities for unofficial vendors to sell products more cheaply just outside the Jazz Fest entrance gates. So, for example, it gets hot in New Orleans in April/May, and Fest rules allow you to bring in “Factory-sealed bottled water for personal consumption.” Bottled water sells for $3 in the Fest. But there are lots of people selling it out of a cooler for $1 in the surrounding streets, so it really makes sense to buy your water before you enter. From the seller’s point of view, if she buys 78 24-count cases of bottled water from Costco, it comes up to under 27 cents a bottle before tax. The incentive to make dollar-a-bottle sales outside the Fairgrounds on Fest days is obvious.

Others of these activities look like something close to agglomeration: An unscheduled brass band that plays right outside of Jazz Fest—as opposed to, say, outside the downtown Federal courthouse—may catch Fest attendees coming or going who are in the mood to appreciate the music (and therefore perhaps more likely linger and dance and drink and tip). A nearby backyard party with a crawfish boil and a band that is open to the public for a small cover charge may draw passersby who are already in a Fest-ive mood, or who would like to enjoy music and food without having to pay for the full, official Fest experience.

The close proximity of the official and unofficial Jazz Fests also raises interesting regulatory questions.

One possible worry is that sellers might choose to sell or bands might choose to play at unofficial rather than official Jazz Fest simply because it’s cheaper or easier (which might be the case if licensing and other fees are lower, or if licensing enforcement is more lax at unofficial Fest). I myself am not convinced that the opportunity to provide goods and services outside the Fairgrounds gates is likely to distort sellers’ behavior in this way. It’s not clear to me that it’s that easy to “substitute up” to being an official vendor or desirable to “substitute down” to selling outside. I suspect, though I don’t know for sure, that we’re talking two very different populations—professional vendors versus more casual sellers. My sense is that most who have the opportunity and capacity to vend or perform at the “official” Fest would prefer to do so.

From the customers’ standpoint, though, there are clearly some potential behavioral distortions. Customers might decide to buy things more cheaply outside before going inside, which might reduce sales made by official Fest vendors. Some might find this problematic because official vendors do incur significant costs (e.g., booth and licensing costs) to operate in the Fest. While some unofficial Fest vendors are properly licensed, it’s plausible to think that not all are, and in any event there are likely disparities in licensing and other costs incurred.

It’s also possible that there are different degrees of sales tax enforcement as between official and unofficial Fest vendors. I obviously don’t know this for sure, because I don’t know the extent to which sales tax compliance is policed outside the Fairgrounds, or inside for that matter. (I also don’t know the relative baseline compliance rates.) The revenue agent we encountered (see Wednesday’s post) indicated that they do check on sellers in the environs around the Fairgrounds, but I got the general sense that such enforcement may be more a question of monitoring business licensing.

Of course, a bigger underlying question is how tightly small businesses (in this case very small businesses such as unofficial Fest vendors) should be regulated at the local level, both as a matter of formal laws and regulations and on the ground. If business licensing costs are significant or qualification requirements onerous, then this might discourage mobile vendors from operating. Some might argue that this protects consumers. On the flip side, it’s been suggested in the context of local occupational licensing that such licensing may be excessive or may have other adverse effects. It’s also possible that if licensing is costly or otherwise prohibitive, this might actually encourage unlicensed operations, particularly in environments where enforcement is lax. These are obviously complicated (and very much debated) questions. The issue is one of regulatory design as much as anything, and I don’t pretend to have easy answers.

In any event, a discussion of tax and regulatory issues at Jazz Fest felt incomplete without a discussion of the unofficial Fest that happens alongside actual Fest. Both are equally distinctive and unforgettable parts of the Fest-going experience, and I myself have spent much time enjoying both the official and the unofficial Fest over the years.

[fn.1] In my mapping, the official and unofficial Fests are actually both part of “Citywide Jazz Fest,” which encompasses all the parties, concerts, and other spin-off events that happen during the two Jazz Fest weekends. So I am in no way suggesting that the phenomena I’m describing are the sum total of what happens in NOLA during Jazz Fest. Because that would be ridiculous.

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