Las Vegas Strip Clubs Lose Nevada Tax Fight

CARSON CITY, Nev. (CN) - Strip clubs in Las Vegas and other areas must pay the state's 10 percent tax on live entertainment, the Nevada Supreme Court ruled.

Enacted in 2003, the state's live-entertainment tax covers "any activity provided for pleasure, enjoyment, recreation, relaxation, diversion or other similar purpose by a person or persons who are physically present when providing that activity to a patron or group of patrons."

The tax applies to the admission costs and sales of food, refreshments and merchandise in live-entertainment facilities that seat fewer than 7,500 people.

Seven Sin City strip clubs brought their original challenge in U.S. District Court as a First Amendment case, and later filed two separate actions in state court, seeking refunds of the challenged taxes.

The Nevada Supreme Court sided with the state in separate rulings Friday.

"In Nevada, a district court lacks subject matter jurisdiction to consider a taxpayer's claim for judicial relief unless that taxpayer has exhausted its administrative remedies," according to one of the unanimous rulings signed by Justice J. Neely Johnson. "We have recognized limited exceptions to that rule, however, when a statute's interpretation or constitutionality is at issue."

The strip clubs "argue that there is a general exception for claims involving constitutional issues," Johnson said. "This argument ignores the distinction drawn by Nevada authority between facial and as-applied challenges in this context. While facial constitutional challenges may bypass the administrative exhaustion requirement, we have held that as-applied constitutional challenges hinging on factual determinations cannot. ... Because appellants failed to raise their as-applied challenge to the Nevada live entertainment tax before the department, a challenge that hinges on factual determinations not yet made, we conclude that they were required to exhaust their administrative remedies, and therefore, we affirm the district court's dismissal of appellants' as-applied challenge."

The strip clubs failed to show that the tax violates the First Amendment because the tax "does not discriminate on the basis of the content of taxpayer speech, target a small group of speakers or otherwise threaten to suppress ideas or viewpoints, according to the ruling.

Applying rational-basis review, the court said "the statute is presumed to be constitutional."

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