Pole Tax

Attempts to block a state-imposed $5 fee on Texas gentlemen's club admissions — slated to go into effect Jan. 1 — so far have failed.

District Judge Scott Jenkins refused to block the tax from going into effect, paving the way for a lawsuit that seeks to prove the unconstitutionality of the tariff, which plaintiffs contend is discriminatory, suppresses their right to free speech and endangers the survival of many affected businesses.

The tax initiative is intended by officials to raise an estimated $50 million annually.

A trial date is expected to be set after Jenkins rules on the plaintiffs’ legal standing and ability to sue the state.

Texas Attorney General Greg Abbott and state Comptroller Susan Combs submitted a legal brief to the court, stating that the fee does not prohibit nude dancing, does not dictate where live nude entertainment may be presented, does not require any minimum clothing and does not govern the physical setting for the activity.

Even though the state does not specify how the $5-per-customer fee should be collected, most club owners are expected to collect it as part of a cover charge.

A $5-per-customer fee on Texas strip club patrons dubbed the "pole tax" has been declared unconstitutional.

A state district judge ruled that clubs can't collect the fee. The charge went into effect in January and was expected to raise about $44 million.

Judge Scott Jenkins wrote in the March 28 decision that the fee, while furthering laudable goals, violates the First Amendment to the United States Constitution and is therefore invalid.

The Texas Entertainment Association Inc., which is a group of topless clubs, and the owner of an Amarillo club, sued Texas Attorney General Greg Abbott and Comptroller Susan Combs over the fee.

Witnesses for the strip clubs testified at a hearing last year that the clubs would go out of business if they had to collect an additional $5-per-patron fee.

Lawyers for the state had said the Legislature was within its rights to impose the fee on businesses that serve alcohol and offer nude performances.

Attorneys for the state have argued that the fee does not prohibit nude dancing, does not regulate what entertainers wear and does not regulate the businesses in other ways. The state can appeal the decision.

Update: Unconstitutional Tax Continues

23rd April 2008

State District Judge Stephen Yelenosky has told attorneys for Texas strip clubs that the state can continue to collect a controversial strip club fee — which was struck down as unconstitutional three weeks ago — while the state appeals the ruling.

With the state facing a dire budget crisis, a California politician plans to introduce new legislation that would tax consumers of adult entertainment.

Democrat  State Assemblymember Alberto Torrico said he plans to push for new legislation that would place a tax on the goods and products associated with the adult entertainment industry.

Torrico's spokesman Jeff Barbosa said the amount of the tax had not been determined, but the legislation could be introduced within a few weeks.

The timing of Torrico's proposal comes on the heels of a similar bill's defeat in August. A 25% excise tax on adult products and productions proposed by Assemblyman Charles Calderon gained no traction in the assembly and died in committee.

A Georgia state senator said that he is thinking of imposing fees on strip club patrons supposedly to help fund programs for victims of sexual abuse. Surely the reality is more moral than charitable.

The legislation, proposed by Senator Jack Murphy, would charge between $3 and $5 per visitor at every strip club in Georgia. Murphy says he would forward the additional revenue to therapeutic programs for victims of child prostitution and other forms of sex-related abuse because the state has cut funding for a lot of such services to compensate for statewide falling revenues.

Although Lt. Gov. Casey Cagle, who presides over the state senate, says he is reluctant to add such a fee because this is not the time for raising taxes.

Many in opposition to the proposed legislation argue that a fee would not only make a difference, but also put many of these strip clubs out of business.

You’re not just putting a tax on the patrons of the adult clubs, said Aubrey Villines, a lawyer who has represented strip-club-owner Jack Galardi. What does it do to the waitresses, to the food workers, to the parking attendants? The people who all depend on this industry for work?

A similar strip-club fee of $5 per patron was instated in Texas in January 2008. In this case, a state district judge ruled in March that the fee was unconstitutional in that it violated the First Amendment.

Murphy says he will announce his final decision after consulting legislative leadership.

State Representative Mark Miloscia has propose to levy an 18.5% Washington State tax on all visual or audio pornographic materials.

Several other Democrats have also signed on to the bill, including House Majority Leader Lynn Kessler.

Under the bill, revenue collected on sales and use of adult entertainment materials and services would be used to help fund the General Assistance-Unemployable, a safety net program.

The tax would be levied on magazines, photographs, movies, videos, cable television services, telephone services, audiotapes, computer programs and paraphernalia that market porn.

For me it is a no brainier, Miloscia said: People say this will cause business to go out of state; who is going to care about that?

He said the bill was inspired by California, which he said has a 25 percent adult entertainment tax. He said the tax generated almost $250 million for the state last year.

Miloscia said his bill will likely be heard by the House Finance Committee in the coming days.

In light of a $15 billion state budget deficit, New York Governor, David Paterson, has proposed an additional 4% tax on all digitally delivered entertainment services, including online adult content.

Following the proposition, the iPod tax was immediately met with criticism from not only the adult entertainment industry, which has largely dismissed the tax as a publicity stunt, but also from the conservatives, who fear that such a tax would legitimize the downloading and viewing of adult content.

You're sending a message to children, and you're sending a message to teenagers: If you're taxing it, how can it be wrong? said state Conservative Party Chairman Michael Long.

Paterson's proposed tax is the most recent of a seemingly popular trend in that it follows similar propositions in California and more recently, Washington.

Update: Unconstitutional

18th February 2009. See article from avnmag.avn.com

At least one constitutional scholar questions the legality of such a tax.

If the tax were limited to [MP3, porn and other entertainment downloads], there would be some substantial problems, said attorney Reed Lee, an expert in constitutional law: If it's an attempt to tax all Internet traffic, whether that be downloading the latest NASA pictures from Mars for scientific purposes or what, as well as entertainment downloads, then that has a much better chance of passing constitutional muster. In general, a tax designed to impose a burden on specific expression will face the most serious constitutional obstacles in court.

Lee cited two late-'80s cases involving the Minneapolis Star Tribune newspaper and the Arkansas Writers Project. In the Minneapolis case, the government tried to place a sales tax on newsprint - and failed.

A government can impose a sales tax on newspapers and magazines, so long as it also imposes a sales tax on everything else, Lee explained. But a sales tax on only newspapers and magazines might pose a serious constitutional problem. And one imposed only on Playboy and Penthouse would face virtually insurmountable problems.

Update: Wisconsin

20th February 2009. See article from theregister.co.uk

Wisconsin has followed in the footsteps of New York State by passing a stimulus bill that includes a measure for adding sales tax to digital downloads starting October 1. The bill also includes budget cuts as well as a variety of tax increases to patch Wisconsin's $600m shortfall under its current budget set to expire June 30.

But the bill is getting a lot of media play for its digital tax provisions, fingered as (the arguably misleading moniker of) an "iPod tax." The name obviously downplays the true reach of the tax, which levies a 4 per cent charge on "digitally delivered entertainment services" including music, movies, e-books, greeting cards, ringtones, and many other downloadable items. It's expected to generate $11m for the state over two years.

Update: Wisconsin downloads new tax

21st February 2009. See article from business.avn.com

Wisconsin state legislature has now approved a 5% tax on Internet downloads to take effect in October.

Backed by Governor Jim Doyle, the tax will apply to music, movies, downloads, games, ringtones, e-books, greeting cards and other items, according to the Associated Press. This would presumably include adult content.

Update: Stimulus ends need for Download tax

12th March 2009. See article from gamepolitics.com

Gamers who live in the state of New York are already experiencing a benefit from President Obama's recently-passed stimulus package.

CNN reports that New York has scrapped a plan to tax digital downloads such as iTunes music and video games.

Instead, Gov. David Paterson and New York legislators will utilize $1.3 billion in stimulus money to help balance the state budget.

Representative Mark Miloscia gave it his best shot, but his proposal to tax adult entertainment products and services to fund unemployment and welfare benefits is dead - mainly because it's too complicated.

According to the Seattle Post-Intelligencer, Rep. Ross Hunter , chair of the state House Finance Committee, had originally said he'd give a hearing to House Bill 2103,  but thought better of it after remembering that the state had previously signed onto the 2002 Streamline Sales and Use Tax Agreement, whose fundamental purpose is to simplify and modernize sales and use tax administration in the member states in order to substantially reduce the burden of tax compliance.

Miloscia's porn tax bill, it seems, in attempting to put a tax on goods based on their content, wouldn't fly under the simplification agreement - and besides, a tax based on content is just unconstitutional.

Texas legislators have given a green light for a new tax on sexually oriented businesses that would replace a measure that taxes patrons entering strip clubs.

Under H.B. 982, a $5-per-person gentlemen's club fee would be repealed and replaced with a 10% tax to those sexually oriented businesses that charge an admission fee.

The bill, introduced by Representative Senfronia Thompson and endorsed by the adult entertainment industry, passed the House on Thursday.

This bill is unlike the $5 admission tax that has been tied up in the courts since the last legislative session, Thompson told XBIZ: The free-speech issue that has dogged that one has been eliminated with this bill. We are charging a tax, in this case, to do business in the state of Texas.

Thompson noted the proposed tax does not target nude dancing, a form of expression a Texas court ruled is protected by the First Amendment.

She said that the bill was hammered out with the help of members of the Texas Entertainment Association, which is an industry trade association for Texas strip-club owners. She noted that there are 115 known strip clubs in the state.

The bill's target is strip clubs, but it could be expanded to other sectors. H.B. 982 defines sexually oriented businesses to include any commercial enterprise selling, renting or exhibiting items [and services] intended to provide sexual stimulation or sexual gratification to the customer.

Strip owners who have paid the state under the old fee would get a credit toward the new tax, which would go into effect as early as July 1. Thompson said that the bill has moved on to a fast track in the Legislature and could be signed into law by the governor within weeks.

A proposal to levy a $5 tax on sex acts in Nevada has died in a state Senate committee.

The 3-4 vote Thursday in the Nevada Senate Taxation Committee was one shy of the four needed to keep the proposal afloat.

Committee Chairman Bob Coffin, the Las Vegas Democrat who sponsored the bill, says the state is desperate for revenue and has not collected taxes from prostitution since it was legalized in some rural counties more than 30 years ago.

The measure that would create a 12% excise tax on all tangible adult entertainment products in California has been dropped for the legislative season but still is alive.

Assembly Bill 1082 is slated as a two-year bill and will be brought back in August when the Legislature reconvenes after summer recess, according to Allegra Kim, a legislative analyst for state Assemblyman Alberto Torrico who sponsored the measure.

But for the time being, Free Speech Coalition Executive Director Diane Duke is elated: We’re thrilled. We dodged another one, but there always are those who believe in the absurdity of a bill like this one. I think there always will be those who want to abridge the industry’s free-speech rights.

FSC was joined by the American Civil Liberties Union, which said that the U.S. Supreme Court has made it clear that a tax on First Amendment protected speech will not withstand constitutional scrutiny and that the tax imposed by this bill is an unconstitutional, content-based regulation on speech that impermissibly burdens vast amounts of protected expression.

A Texas Court of Appeals panel has upheld a lower court ruling striking down a tax that imposed a $5 tariff for each customer entering a sexually oriented business (SOB).

On appeal, Texas Comptroller Susan Combs argued that the SOB tax does not violate the 1st Amendment nor the Texas Constitution, that sovereign immunity bars suit by the Texas Entertainment Association and that the trial court erred in awarding attorneys fees.

But the appeals court judges had concern over a tax that was a content-based speech regulation and subjected to the strict scrutiny required to determine if the regulation were narrowly tailored to serve a compelling governmental interest.

Evidence that the SOB tax is aimed at reducing secondary effects of sexually oriented businesses does not preclude the proper application of strict scrutiny in this case, the court ruled.

In addition, the court overruled the sovereign immunity and attorneys fees claims by the Texas comptroller.

At post time, it wasn't clear whether the comptroller will appeal the decision to the Texas Supreme Court.

A California bill that would impose a 20% tax on sales of adult movies and sex toys, as well as the receipts of strip clubs, has been introduced in the Legislature.

California Assemblywoman Mary Salas introduced the proposal, which would send revenue from the tax to a newly created Adult Venue Impact Fund.

The fund would then be distributed to local law enforcement agencies in an effort to deal with supposed secondary effects that are associated with adult entertainment businesses.

Free Speech Coalition lobbyist Ignacio Hernandez said the bill could be found unconstitutional on several points, including taxation based on the content of a movie: This measure is clearly unconstitutional and unworkable. This bill is much broader than previous efforts to tax adult movie and novelty retailers. Therefore, it suffers from greater constitutional defects than prior bills.

Hernandez said the broad definition of harmful material included in the bill's language would likely be opposed by entertainment organizations like the Motion Picture Association of America.

Specifically, Assembly Bill 847 would levy a 20% on the gross receipts of any California business that is:

• A retail establishment whose gross receipts from the sale or rental of adult material exceeds 50% of all gross receipts.
• Providing a public or private viewing of adult material.
• An establishment that offers live sexually explicit conduct that is prohibited to audiences under 18 years of age or 21 years of age, depending on whether alcoholic beverages are sold on the premises.

A hearing on the latest proposed porn tax bill is scheduled for next month.

A California bill that would have imposed a 20% tax on sales of adult movies and sex toys, as well as the receipts of strip clubs, has been voted down by a legislative panel. The bill was voted down in the Assembly Tax and Revenue Committee.

California Assemblywoman Mary Salas, D-San Diego, sponsored the proposal, which would have sent revenue from the tax to a newly created Adult Venue Impact Fund.

The fund would then have been distributed to local law enforcement agencies in an effort to deal with secondary effects that are supposedly associated with adult entertainment businesses.

Salas' chief of staff, Francisco Estrada, told XBIZ that the assemblywoman was deeply disappointed by the 5-4 vote against the bill: At this point, we're not sure if the bill will be resurrected .

The Utah Supreme Court has ruled that a state tax on strip clubs is constitutional but that the same tax on escort services is not.

Passed in 2004, the tax levies a statewide 10% tax on admission and user fees charged by sexually-explicit businesses, defined as any business where a nude or partially denuded employee or contractor performs any service. Utah-produced merchandise, food and drinks sold by these businesses also are subject to the tax.

The statute also levies a tax on escort services, which are defined as any person who furnishes or arranges for an escort who is compensated to accompany another individual for companionship. An escort is any individual who is available to the public for the purpose of accompanying another individual for compensated companionship.

Associate Chief Justice Matthew B. Durrant said that the state's Sexually Explicit Business and Escort Service Tax is content-neutral when applied to nudity.

In this case, application of the tax is triggered by nudity, which the Supreme Court has specifically declared 'is not an inherently expressive condition, Durrant wrote. Because it is not inherently expressive, nudity is unprotected conduct rather than protected expression.

Regarding the taxing of escort services, Durrant found that the language was fatally overbroad, but opened the door to a legislative revision that included more specific language. Nowhere does the statute define an escort in terms of nudity, he wrote. The statute also fails to define the term 'companionship.' Therefore, according to the plain terms of the statute, individuals who are paid for providing care for the elderly as well as those who are paid as tour guides would fall within the definition of an 'escort,' and any person or business who employs them would be subject to the tax.

The Texas Supreme Court has decided to review the legality of charging a $5-per-person pole tax to patrons of strip clubs and other adult entertainment venues, a case that has hinged on whether the government can tax content protected by the First Amendment.

The law, passed in the 2007 legislative session, originally directed revenues collected from the fee toward sexual abuse and violence treatment and prevention programs, but it has been mired in legal wrangling almost since it took effect in 2008.

I'm extremely happy that they agreed to hear the case, said State Rep. Ellen Cohen, who sponsored the legislation and filed an amicus brief urging the court to review the matter. If you're going to do this, you need to raise a substantial enough amount of money to make a dramatic effect on issues surrounding sexual violence. The way we fashioned it was absolutely the correct way and the most reasoned way.

The law was struck down in March 2008, by a Travis County District Court judge, a ruling that was upheld in June by the Austin-based 3rd Court of Appeals. The state has collected more than $12 million in fees that have been held in escrow pending the final outcome of the case.

David A. Furlow, a former Harris County prosecutor who has represented businesses in numerous cases involving First Amendment protections, said the central issue is whether the government can levy a tax on speech, such as a newspaper or TV show or dancing in a strip club, that has the effect of singling it out.

When you say certain types of messages and certain types of entertainment can be taxed, you begin down a slippery slope that can allow the government to destroy a form of business by taxing it out of existence, he said. You start down a pathway that could lead to censorship-based government like that which exists in Iran.

To defend the law, the government has been forced to argue that strip clubs lead to greater violence against women, a claim for which there is no evidence, Furlow said. Under such logic, he added, R-rated movies could be taxed because of the violence sometimes depicted in them.

Expectations were high six years ago when the Utah Legislature enacted a 10% tax on escort services, and semi-nude and fully nude clubs.

Lawmakers predicted the tax on sexually oriented businesses would rake in up to $1 million per year, which was earmarked to pay for sex offender treatment programs and investigations of Internet child sex crimes.

But the potential tax base was whittled down when the Utah Tax Commission exempted semi-nude clubs. And later the Utah Supreme Court struck down the portion of the law applying to escort services.

As of Tuesday, when the U.S. Supreme Court declined to hear a challenge to the tax mounted by strip club owners, just one club remains affected by the decision: Southern Exposure in Salt Lake City, which features full frontal nudity.

There's not enough money in this tax to justify collecting it, said attorney Andrew McCullough, who represents the owner of Southern Exposure.

Charlie Roberts, a spokesman for the Tax Commission that the amount of tax collected from Southern Exposure was not very much.

Arkansas Senator Percy Malone introduced SB921 on the last day of filing for the session. The bill, if passed, would tax adult entertainment businesses in the state and use the proceeds for the protection of abused children.

Currently SB921 does not indicate how much of a tax will be sought.

The all too literal title of the bill is An Act To Amend the Laws Regarding Taxation of the Adult Entertainment Industry; To Provide that Revenues Generated from the Taxation of Businesses in the Adult Entertainment Industry Shall Go Towards the Protection of Abused Children; and for Other Purposes.

Lap dancing cannot be considered an art form, a New York state court hearing a tax dispute has ruled.

The owners of the Nite Moves strip club in Albany had argued the business should not have to pay sales tax on money earned from admission fees and lap dances. It claimed a state law that makes dramatic or musical arts performances exempt from sales tax should include strippers' dances, whether they are on a stage or in private booths.

The five judges at the Appellate Division, Third Department disagreed with the idea that stripping could enjoy the same tax status as ballet and ruled against the club.

Justice John Egan Jr said Nite Moves had failed to establish that private dances were genuine choreographed performances and suggested the strippers usually learned their trade from videos or watching colleagues. He added: The record reflects that the club's dancers are not required to have any formal dance training.

Nite Moves' lawyer, Andrew McCullough, said the club would appeal against the ruling, on the grounds the court had made a value judgement on the artistic merits of lap dancing.

The Texas Supreme Court has upheld a 2007 strip club entry fee tax, commonly known as the pole tax , claiming that the $5 charge doesn't substantially impact erotic speech and is justified as a tool to prevent the secondary effects allegedly caused by the combination of naked, gyrating female bodies and alcohol consumption.

Because the fee is content-neutral and satisfies the four-part O'Brien test, we conclude that it does not violate the First Amendment, wrote Justice Nathan L. Hecht for the unanimous court panel.

But as those who've been following this litigation know, the issue of using the fee to combat secondary effects was an idea introduced rather late in the game.

This is just a source of revenue; it has nothing to do with secondary effects, an attorney stated: The lady that authored the bill, when she presented the bill for the first time in committee, said, 'We are not claiming a link between topless bars and sexual assault.' She was specifically asked that question.

That link was contested statistically by a professor at the University of Texas, and it was also contested in the sense of, there was no evidence introduced supporting that theory... There was no evidence that there had been sexual assaults in the neighborhood, which is the basic secondary effect concept. They had evidence from a professor and a former police officer-turned-investigator that talked about sexual offenses in connection with entertainers, and they were assaultive type offenses, but not committed by patrons, and not in the neighborhood.

Of the 169 clubs to which the fee applies, the attorney estimated that more than half could be put out of business because of the fee; that another 30% would be hurt, while just 20% would be minimally affected.

A Tennessee lawmaker has proposed a 25% on adult businesses and products that he claims could increase state revenue by $55 million.

According to local News Channel 5, Joe Carr believes the sin tax could help Tennesseans by tapping the state's $222 million annual porn business. He said:

If we can't outlaw it, and the Supreme Court says we cannot, then what we'll do is put a 25% tax on adult material, hard core pornography.

The lawmaker said it's not just about the money, but more about the harm porn is doing to local marriages.

But some Constitutional experts think the proposed bill probably violates the First Amendment. States have a legal right to tax so-called vices like liquor and tobacco but they're commercial products and don't have any First Amendment aspects attached to them as porn does.

Another strip club tax is being considered by California's Legislature. AB 2441 is set to place a $10 fee on visitors of establishments that offer alcohol and topless or nude performances.

It's the fourth attempt to tax sexually explicit businesses in the past four years in California. All of those bills, which would have levied a 20% sales tax were shot down. A tax raising bill requires a two-thirds vote of both the Assembly and Senate.

AB 2441, however, would be the first legislative action to mandate a fixed-fee pole tax .

JA spokesman for Californian Assemblyman Das Williams said that strip clubs are a good possible resource for funding because there's already a model to tax adult entertainment establishments. Pole taxes are now mandatory in Texas and Utah, with legislation being mulled for similar tariffs for adult entertainment customers in Illinois, New York, New Jersey, Pennsylvania and Tennessee. He said that the bill is on track in the Assembly and could be approved by both houses in September.

An Illinois Senate panel this week has given the green light to tax strip club patrons $3; alternatively, clubs could opt for a flat annual fee based on the amount of revenue they generate.

The proposal would affect clubs that offer alcohol and nudity, including topless dancing. The legislation, state House Bill 1645, originally sought $5 a head and no flat fee, but these has now been reduced.

State Sen. Toi Hutchinson, who introduced the bill, said that lobbyists for the adult entertainment industry, particularly the Illinois Club Owners Association, were able to forge a compromise during intense talks.

The Illinois measure, which sailed through the Senate Public Health Committee unanimously, now heads to the full Senate for further debate.

Houston council voted this week to levy a $5 fee on strip club customers of the city's 30 licensed strip bars. This in addition to the $5 fee to the state of Texas when visiting an adult venue, thanks to a law passed in 2007.

The moral tax will be ring-fenced and put towards analysing forensic evidence collected from rape victims.

Supporters of the so-called pole tax argue that lap-dancing clubs must shoulder some of the financial burden of rape investigations , on the supposed grounds that their businesses help foster misogynistic attitudes towards women, which can lead to sexual assaults. If they were being fair about it then the tax would have been better targeted at the Catholic Church.

The morality tax was passed by 14 votes to one. The ordinance stipulates that the fee also applies to bars and night-clubs which offer one-off events that could be construed as sexually explicit, such as wet T-shirt contests or naked sushi contests .

Albert Van Huff, a Houston lawyer who represents strip clubs, told the Journal that the tax is based on flawed logic. There is no known correlation between people going to nice, high-end gentlemen's clubs and rape, he said.

New York's highest court is set to hear arguments on whether Nite Moves , a strip club in suburban Albany, deserves a state tax exemption similar to that for theater or ballet.

State tax officials say the club owes an 8% sales tax for admissions to the club and for so-called couch sales, where patrons pay for private lap dances, the Associated Press reports.

Nite Moves claims the dances are exempt under state tax law as live dramatic or musical arts performances, which applies to theater and ballet, the AP reports.

New York Attorney General Eric Schneiderman's office argues in its briefs that some Nite Moves performers have no dance training and simple pick it up by watching. Such a dancer isn't engaged in a genuine choreographic dance performance when she removes her clothing, the brief says.

But Stephen Dick, the club's CFO, dismisses the notion that formal training should be any critera when its comes to entertainment.

Two Philadelphia strip clubs are appealing huge taxes levied against them by the city based on a so-called amusement tax that usually is applied to admission fees but in this case someone dreamed up the wheeze that it should also apply to lap dance revenue. The taxes are not slight, Club Risque was charged $320,538, and Cheerleaders was charged $486,482.

Club attorney, George Bochetto, called foul, accusing the city of auditing lap dance revenue and then going back five years and tacking on fines. It's over the top. Unbelievable, he told Philly.com:

The clubs, of course, pay business taxes in addition to the amusement tax, and dancers are supposed to pay income and wage taxes. An informed City Hall source says the city feels it can run an amusement tax up the pole because the lap dance is a separate experience.

Bochetto says that's double-dipping.