Texas Strip Club ‘Pole Tax’ Survives Appeal

     AUSTIN (CN) – A $5-per-head “pole tax” on Texas strip clubs and gentlemen’s clubs does not violate free-speech rights and need not fund schools, an appeals court ruled.
     The decision came Friday, seven years after Texas Entertainment Association, an advocacy group for adult businesses, and Karpod Inc., the owner of Players Gentlemen’s Club in Amarillo, sued the state in Travis County Court.
     Though the 3rd District Court of Appeals had originally affirmed a ruling that the tax violated the club owners’ First Amendment rights, it considered the case again after the Texas Supreme Court reversed and called for consideration of the remaining state-law claims.
     The trial court against found the tax constitutional on remand. In addition to finding no violation of the Texas Constitution’s equal and uniform clause, or its free-speech clause, the court deemed the tax an occupation tax, meaning that 25 percent of its revenue could go to public schools.
     A three-judge panel with the 3rd Court reversed the occupation-tax designation Friday but affirmed in all other respects.
     Rather than an occupation tax, a more proper designation is a general excise tax.
     “We recognize that the legislature knows how to label a given revenue provision as an occupation tax when it so chooses,” the 16-page opinion states. “By labeling the sexually-oriented-business tax as a fee, the plain language of the statute indicates that the legislature did not consider the provision to be an occupation tax, and therefore was not intended to be a tax of operating this kind of business.”
     The main purpose of the tax is to discourage sexually oriented businesses altogether while also generating revenue to offset the associated “social ills,” not tax such businesses for the privilege of providing nude dancing along with alcohol,” Justice Scott Field wrote for the court.
     The first $25 million generated by the tax is directed to a sexual assault program fund, according to the ruling.
     Field also found no showing that the Texas Constitution offers greater protection than the First Amendment of the U.S. Constitution for free speech associated with nude entertainment.
     “Rather, the TEA merely asserts that article 1, section 8 of the Texas Constitution generally offers broader protection than its federal counterpart and notes that prior restraint on free speech is presumptively invalid under the Texas Constitution,” Field wrote, abbreviating Texas Entertainment Association. “These bare assertions fail to show how the text, history, or purpose of the Texas Constitution offers greater protection for this type of speech.”
     R.J. DeSilva, a spokesman for Comptroller Susan Combs, said in an email that his office will await any “any further potential legal proceeding” regarding the tax.
     One month ago, the comptroller sent a letter to strip club owners reminding them the tax is still in effect despite the litigation, DeSilva added.
     “Any claim that ongoing litigation is a basis for nonpayment of the Sexually Oriented Business Fee is not valid,” that letter states. “This law was effective Jan. 1, 2008, and the first report and fee under this law were due April 21, 2008. All past due reports and fees are due and payable immediately; however, reports and fees filed and paid by July 21, 2014, will be considered timely.”
     Bradley Bryan, a lobbyist for TEA, did not return a request for comment.

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