Texas Can Tax Twerking Contests, And Other Pole Tax News

by Bubbles on May 16, 2014 · 0 comments

in Politics, Strippers

paynopoletax​This weekend, the 3rd Circuit Court of Appeals upheld the Texas pole tax​ against an appeal that charged the tax was an improperly utilized “occupation tax.” Officially known as the Sexually Oriented Business Fee, the tax requires strip clubs to pay $5 per patron to a fund for victims of sexual assault. While similar taxes have been passed in other states, Texas was the first to pass one in 2007, though it’s been continuously challenged in court.

Just last week, Comptroller Susan Combs said she’d start aggressively pursuing clubs​ that weren’t paying the tax, although she did not mention whether she would be going after the other businesses it targets. The tax is supposed to be collected from the door of any premise hosting adult entertainment.

From the Texas Administrative Code:

(3) A business that holds occasional events described in subsection (a)(3) of this section, but does not habitually engage in the activity described in subsection (a)(3) of this section is liable for the sexually oriented business fee for those occasional events. For example, a nightclub that hosts a wet t-shirt contest is liable for the fee based upon attendance during the event.

The bar manager at the Palm Street Pier on South Padre Island said that while they’ve had wet T-shirt contests in previous years, they didn’t have one in 2014 because “no one showed up.” She said that they have never been asked to pay the SOB fee on previous years’ contests. I’m waiting on a reply from Austin club ND as to whether they were asked to pay it for nights they held “Twerk For A Stack” contests. One club that isn’t a strip club, Tony’s Corner Pocket in Houston, appears on the comptroller’s rolls as having paid each year the tax is in effect. They have occasional amateur strip contests and it appears that this is what they’re paying on, making them the most scrupulous bar in the state, since no other non-strip club appears in the payment records. 

The Sexually Oriented Business Fee is just one way that Texas has formalized strip club payouts to the state. Club-specific fees are a way of transforming the good old cash bribery of the past into an official revenue stream. Most of the thanks for the new system in Texas goes to Ellen Cohen, the legislator who authored the original pole tax, then, as a city council member in Houston, attempted to implement an additional one for that city intended to fund the processing of rape kits. And late last year, Houston agreed to settle a suit with 16 clubs, allowing them to operate free of strict (and fairly universally ignored) regulations passed in the late 1990s in exchange for a $1 million annual payout to a local trafficking task force.

Over $17 million has been collected since 2008. According to Texas Comptroller spokesperson R.J. DeSilva, that money is being held in an account as the appeals process continues, and has not been disbursed to any of its intended beneficiaries. The tax was first unsuccessfully challenged by the clubs on First Amendment grounds, and then on the grounds that it’s an improperly allocated “occupation tax.” It’s been upheld since it targets, specifically, clubs that provide nude or seminude entertainments and allow for the consumption of alcohol on premises (the “allow” means the tax includes Texas’s full nude clubs, which are barred from selling alcohol, but may allow patrons to BYOB and drink on premises), therefore not solely targeting nude dancing, which would arguably be a protected form of expression.

The actual language of the tax calls sexual assault a secondary effect of strip clubs, and both the original legislation and the appeals cite research to back their claim. Much of it is outdated and full of bad information. But at least they’re honest about what they really want the pole tax to do. From P 11 of the judgment:

Rather, the tax’s primary purpose is to discourage this type of business activity altogether while also
generating revenue to ameliorate the type of social ills that are associated with this type of business.

The clubs should have fought harder in the legislature, because it’s highly unlikely that they’ll get heard by the Supreme Court, which refused to hear an appeal on First Amendment grounds. When the appeals process is exhausted and the Comptroller comes looking for back payments of millions of dollars, it may shutter some clubs if they haven’t been setting aside the funds to pay the tax—yes, their stated goal, because this is a tax that seeks to put its source of revenue out of business.

Taxes themselves aren’t the issue, and honestly, in Texas we get off relatively easily. There’s no city where stripper licenses cost $350 (like Atlanta) or where you have to hit two different government departments to be legal to work (like Las Vegas). But in a state that has no income tax and bends over backwards to maintain its business-friendly environment, extending tax breaks and incentives to less controversial industries and allowing its governor to act like he’s going to poach business from other states, it’s downright offensive that the legislature thinks that strip clubs are the businesses it should be targeting to fund services for sexual assault victims. I would wager right now that the University of Texas sees by far more sexual assaults than all the strip clubs in Texas combined, but I don’t see a $5 surcharge on a UT football ticket.

If you’re curious, below are the numbers for the pole tax so far. In its first year, over $11 million was paid to the state, but as the appeals have dragged out, payments dropped to a total of $745,092 in 2013. A total of 105 clubs (out of 200+ in Texas) have paid the tax since 2008, and out of those clubs, 13 have paid the tax every year. Those are in bold. Interesting to note is that the border region, specifically El Paso but also the Rio Grande Valley, has the highest rate of compliance. The 14th club that’s paid every year is the gay bar in Houston that isn’t a full-time strip club.

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