NY Supremes: It's OK To Tax Flynt's Hustler Club Entry Fees

NEW YORK CITY—In a ruling handed down on Thursday, a five-judge panel of the New York State Supreme Court ruled that it was not unconstitutional for the New York Department of Taxation to collect excise taxes of the admission fees to adult entertainment (read: strip) clubs, even if similar non-adult venues are exempt.

The controversy stretches back to 2009, when the Department of Taxation audited the Manhattan branch of Larry Flynt's Hustler Club and found that the club had not paid excise taxes on the sale of the club's "Beaver Bucks": scrip purchased from the club and used to pay for stripping performances in the VIP room, lap dances, and to tip dancers, waitresses and bartenders. Fast-forward to February of 2014, when New York's Division of Tax Appeals sent the club a bill for $2 million in unpaid taxes after Flynt's attorneys, including well-known club defender Bradley Shafer, failed to convince the appeals board that the exotic dancing taking place at the club was "live dramatic, choreographed performances," which venues have historically been exempt from excise taxes.

The club's attorney had presented Administrative Law Judge Donna M. Gardiner with "extensive photographic and video evidence" of the dance routines performed at the club, as well as two witnesses who "testified as to the agility and dance acumen required to perform as an exotic dancer at the Hustler Club," even going so far as to provide descriptive names to the various routines.

Sadly, Judge Gardiner didn't buy the arguments, ruling that the club "provides a service to its patrons that essentially boils down to performers who remove their clothing and create an aura of sexual fantasy. The plain facts of this case have been obfuscated in an attempt to characterize [exotic dancing as] live dramatic, choreographed performances. However, the services provided by the entertainers at the Hustler Club is sexual fantasy, not dance ... The movements, whether dance moves or other choreography, that compromise an entertainer's routine and that appeal to the patron, are ancillary to the ultimate service sold, which is sexual fantasy."

It's unclear, however, how Judge Gardiner distinguished "sexual fantasy" from the reality of the dancing, which in most venues is considered First Amendment-protected activity and is therefore essentially no different than any other dance routine performed in any other show or venue, such as bluegrass music festivals, the Ice Capades and choreographed dance troupe shows—all of which are considered excise-tax exempt by the tax authorities—and it was on that basis that Flynt's attorneys filed suit against the Department of Taxation, charging that the department was discriminating on the basis of the erotic nature of the dancing.

"The United States Supreme Court has ruled in numerous cases that presentational dance entertainment, including that which is of a 'striptease' variety—and whether clothed, 'topless' or full nude—is presumptively protected expression under the First Amendment to the United States Constitution," the club's attorneys argued in the lawsuit. "Whether or not an entertainment performance fits within the amusement tax exception is dependent upon the content of that entertainment performance."

However, the club's arguments fell on deaf ears when, in January of 2015, the state Supreme Court ruled in favor of the government's motion to dismiss the club's appeal of Judge Gardiner's decision, but the club's attorneys appealed that ruling as well, and it was that appeal which was decided earlier this week.

In its most recent decision, the Supremes ruled that it was already established law in New York state that the state legislature can "pick and choose" which types of expression it is willing to exempt from taxation, and noted several types of entertainment, including sporting events, car races, amusement parks, arcades, zoos, animal performances and magic acts, that are required to pay the excise taxes on admission fees.

"Nothing in these tax laws prohibits such expressive conduct," the panel ruled. "Rather, they simply evidence the legislature's desire to encourage activities deemed socially desirable while remaining neutral as to other expressions."

Except, of course, taxing one entertainment venue and not another based on the type of expression presented is hardly "remaining neutral"—but the court covered itself by claiming that the tax wasn't being levied on the performances but rather on the "Beaver Bucks" used to pay for them.

"Undoubtedly, there can be no meritorious First Amendment challenge to imposing taxes on the sale of such multi-use, in-house currency," the court said.

It's unclear at this time whether the club's attorneys will appeal the state Supreme Court's decision to the federal court system.