Strip Club Owners Fight Double Taxes

     HOUSTON (CN) – Strip club owners sued Houston, claiming the city is unconstitutionally taxing them $5 per customer to fund the city’s backlog on processing of rape kits.
     The politely named Hospitality Executives of Houston sued Houston in Harris County Court.
     The nonprofit Hospitality Executives represent semi-nude strip club operators in Houston that allow alcohol consumption.
     Houston’s City Council passed the “Rape Kit Funding Ordinance” in June.
     The law charges “‘adult establishment’ businesses in Houston” a $5 fee for each customer, even those who spend no money in the club, and includes quarterly reporting and payment requirements.
     Hospitality Executives claims that Texas in 2007 enacted a Sexually Oriented Business Fee Act that imposed a $5 tax on nude strip clubs that allow alcohol, so “the total charge to those businesses subject to both taxes will now become $10.00 per customer.”
     Ellen Cohen wrote the state tax while she sat in the state House. She lost the Republican primary for her House seat in 2010.
     Cohen then was elected to Houston’s City Council and sponsored the Rape Kit Funding Ordinance.
     “The RKFO provides that all of the money obtained from this tax ‘shall be used to fund the processing of all pending Houston Police Department crime lab sexual assault kits and all funds in excess of such use, if any, shall be dedicated to fund the ongoing processing of sexual assault kits at the Houston Police Department crime lab or the Houston Forensics Science Center,'” the complaint states.
     Revenue generated from the fees will pay for the city’s estimated backlog of 6,600 untested sexual assault kits.
     “The backlog was created because the City of Houston, City Council members and four successive city mayors refused to provide funding for the processing of this evidence,” the complaint states. “No reliable scientific assessment has been made to the evidentiary value, if any, which will be gleaned from processing these specimens that have languished in questionable conditions for decades.”
     While the City Council calls RFKO is “merely imposing a ‘fee,'” it is actually an illegal “occupation tax,” Hospitality Executives says.
     The strip club nonprofit claims Texas law allows a municipality or county to impose fees on applicants for a license or permit, but the fees must be based on the cost of processing the applications, and investigating the applicants.
     “The entrance fees imposed on adult establishments by the RFKO are municipal fees which are not based on the cost of processing license applications or investigating license applicants,” the complaint states. “Consequently, the RFKO is facially invalid.”
     Hospitality Executives says the city recently sent a letter to its members warning that the first payments and reports are due by Oct. 20.
     Any club out of compliance is subject to civil and criminal penalties.
     Should the law be enforced, the group says, some of its members “will be passing along the $5.00 fee imposed by this ordinance to their customers, simply because they cannot afford to do otherwise,” and it will have a “deterrent effect on many of the customers.”
     Hospitality Executives wants the law declared unconstitutional and an injunction to stop Houston from enforcing it.
     The organization is represented by James Pianelli of Houston, and John Weston of Los Angeles.
     Nude strip club owners unsuccessfully challenged the Texas law in state court.
     “The trial court and Texas Court of Appeals both concluded that the statute was facially unconstitutional in violation of the First Amendment,” the complaint states.
     “The Texas Supreme Court reversed and remanded for further proceedings to determine whether the statute, inter alia, was an ‘occupation tax’ and whether it violated the Texas Constitution. … On remand, following an extensive hearing, the trial judge issued a final judgment on July 9, 2012, determining that the challenged provision was an ‘occupation tax,’ but that it did not violate the Texas Constitution.”
     In January the U.S Supreme Court refused a request from Texas’ strip club industry to review whether that state’s $5 charge violates free speech.
     The law is intended to fund sexual assault and low-income health insurance programs.
     An appeal on whether the law is constitutional is pending before the Texas Court of Appeals, Third District, in Austin.

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