NEW YORK CITY—There used to be a popular soft porn genre known as the "nudie cutie," but apparently New York's tax laws have been afflicted by a new dreaded disease affecting only adult venues: Nudie cooties.
As things stand now, New York's tax law imposes a sales tax on the admission charge "to or for the use of any place of amusement in this state, except charges for admission to ... dramatic or musical arts performances," with "place of amusement" defined as "[a]ny place where any facilities for entertainment, amusement, or sports are provided"—and anyone who's ever visited a New York strip club can certainly understand how that club should easily fit into the tax exemption allowed by the law. After all, it's got dancers who dance to music while removing their clothes and afterwards, so it's clearly a "musical arts performance" unless, for some reason, one doesn't consider the women's gyrations and pole use as a "performance." It's got one or more stages, not to mention a d.j., whether human or electronic, who plays music as the women strip, which should certainly qualify as a "facility for entertainment" and possibly even "amusement."
Yet another portion of the tax law would impose the sales tax on the admission fees to a "roof garden, cabaret or other similar place"—except, again, those terms don't include "a place where merely live dramatic or musical arts performances are offered in conjunction with the serving or selling of food, refreshment or merchandise, so long as such serving or selling of food, refreshment or merchandise is merely incidental to such performances." That's an easy one: Not many people go to a strip club for the primary purpose of sampling its fine cuisine or even its selection of booze; there are far more and far cheaper places to eat and drink in New York than a strip club—so what's New York's problem?
Well, according to the petition for certiorari recently filed with the U.S. Supreme Court by the Hustler Club's attorney Bradley Shafer, ever since Larry Flynt's Hustler Club (legally known as CMSG Restaurant Group) opened its doors at 641 West 51st Street in Manhattan in March of 2004, it's been regularly presenting, "to the consenting adult public, a variety of non-obscene presentational dance entertainment; some of which involves clothed entertainers and some of which involves entertainers performing while 'topless.'" Sounds like that should easily fit the tax exemptions laid out in the state tax code, yet "For every tax year that CMSG has been open for business, the Department has initiated a tax audit against both CMSG and its Members [aka owners], and for each such audit concluded by the time the complaint below was filed, the Department had assessed taxes under the Challenged Tax Laws against CMSG and/or its Members." And we're not talking chump change here; the state is looking for millions of dollars in unpaid taxes the club supposedly owes the state.
As noted in the petition, the state tax auditor for 2006-2008 was one Renel Saint-Amour, and he testified before Administrative Law Judge Donna M. Gardiner, during an administrative hearing held in response to CMSG's challenge of its alleged tax non-payment, that "he never visited the Club and therefore had not reviewed any of the entertainment provided there in order to determine whether or not it fit within the live 'dramatic, choreographic or musical performance' exception," but nevertheless, "Saint-Amour simply concluded that 'what is on Broadway' is not subject to tax, but 'a gentlemen's club [which he acknowledged he had never visited a single one], an entertainer performing, dancing, that is taxable.'"
Interestingly, the New York tax code contains no definition of the term "dramatic or musical arts performance," though the term "dramatic or musical arts admission charge" is there. It's defined as "[a]ny admission charge paid for admission to a theatre, opera house, concert hall or other hall or place of assembly for a live dramatic, choreographic or musical performance." Again, should be a no-brainer: Dancers often spend days if not weeks or months working on their dance routines before displaying them to the paying public—but for Saint-Amour, that's not good enough.
"A choreographic performance," Saint-Amour testified, "we are talking about a musical that has dancers who went for a number of years or months of training. Training by a choreographer to introduce something new that wasn't there before, a new style of dancer or dramatic event that is taking place on Broadway."
That, apparently, was all Judge Gardiner needed. She ruled that while there were "some elements of dance and certainly choreography" in what Hustler Club was presenting, what the club's women were doing was "sexual fantasy, not dance"—and therefore not worthy of tax exemption.
At that time, Shafer and his team put forth several constitutional challenges to Gardiner's ruling, but since she was just an administrative law judge, she didn't have the power to rule on such challenges—and when Shafer brought those same challenges in a complaint to the New York Supreme Court (which is the trial court level in New York state), the complaint was dismissed and an application for an injunction against the Department of Taxation to prevent the collection of the supposed tax debt was denied. A further appeal to the New York Court of Appeals (the state's highest judicial body) was similarly denied.
"In light of the current economic climate—where many governmental units are under acute financial distress and are looking for easy ways to increase tax revenues that do not create political friction—those engaged in controversial, unpopular, or disfavored speech, and/or those who do not possess the political clout to derail the enactment of abusive legislation, present easy targets for the imposition of significant, and in some circumstances draconian, taxes directly targeting such activities," Shafer's cert petition states. "Such is the case here. The New York Court of Appeals upheld a denial of a tax exclusion based on the tax collector's untrammeled discretion to determine whether a 'live dramatic, choreographic or musical performance' is sufficiently 'artistic' or 'worthy' to qualify. That ruling conflicts directly with federal constitutional limits."
The petition goes on to note that "a tax laid specifically upon protected expression is a form of prior restraint and is 'presumptively unconstitutional'" and that "Content-based taxes are 'particularly repugnant to First Amendment principles.'" [Citations omitted here and below] Shafer further relies on some recent Supreme Court cases, notably Reed v. Town of Gilbert, where the Court ruled that laws limiting speech deserve strict scrutiny; McCullen v. Coakley, the Massachusetts women's clinic buffer zone case, where the Court ruled that it's the government's burden to show that if it enacted less restrictive regulations, they would not accomplish the government's purpose; and McCutcheon v. FEC, a campaign finance case where the Court found that even under intermediate scrutiny, a statute or regulation needs to be at least a "reasonable" fit to its objective, narrowly tailored, and "one whose scope is 'in proportion to the interest served'," and again, the burden is on the government to show that the statute fulfills those requirements.
But Shafer's main argument is that the New York tax laws are being applied in a discriminatory manner, disfavoring speech (in the form of dance performance) that the government simply doesn't like.
"Mr. Saint-Amour's testimony acknowledging that the Department simply concludes, without even viewing the expression, that 'what is on Broadway' is not subject to tax but that other presentations that they do not deem to be 'worthy' are fully taxable, and ALJ Gardiner’s conclusion that performances that are 'certainly choreography' (consequently then otherwise satisfying entitlement to the Amusement Tax Exception and the Cabaret Tax Exception) are nevertheless taxable, further demonstrate the arbitrary content-discriminatory application of these taxes and the vagueness of these exceptions," the petition reads. "Apart from the evident irony of establishing an 'artistic merit' test for a tax code, the three Justice dissent in New Loudon [Corp. v. State of New York Tax Appeals Tribunal] was correct, in retrospect, that the State’s gloss on these laws 'raises significant constitutional problems.'
"This Court has stressed in various contexts that 'a requirement that literature or art conform to some norm prescribed by an official smacks of an ideology foreign to our system,'" the petition continues. "It has emphasized that 'esthetic and moral judgements about art and literature ... are for the individual to make, not for the Government to decree, even with the mandate or approval of a majority.' ... It is difficult to overstate the threat to free expression posed by the government’s misuse of power to levy taxes based on the content of speech or the identity of the speaker."
All in all, Shafer makes a number of good arguments as to why the U.S. Supreme Court should take up this matter, even in light of the Tax Injunction Act which normally prohibits such legal actions. Perhaps the most important one is Shafer's history of inability to find a New York state legal venue willing to deal with his constitutional claims. Another problem, according to an analysis by Michael Macagnone of Law360.com, is that if the state were to collect the taxes and then issue the club a refund, "in order to challenge the state’s tax at the state level, the club would have to track and then individually refund individual patrons, as the tax is charged based on admission"—a clear impossibility.
Trouble is, only about one percent of all cert petitions filed with the high court are accepted for disposition, and the Supremes haven't yet announced any cases that they will definitely be considering this term, or in the alternative, that they will be rejecting. Such decisions usually are announced in mid- to late September.
