Supreme Court Denies Cert in Texas Cabaret Tax Case

DEEPINTHEHEARTOF, TX—It seems only yesterday that AVN reported the good news that the Texas Court of Appeals ruled that adult cabarets and strip clubs in Texas would not have to pay the $5 per customer "entry fee" (aka tax) which the Texas legislature had levied in order to fund such societal goods as women's sexual assault programs and health care for the poor.

But no, that was actually two and a half years ago, and since then, the Texas Supreme Court ruled, on August 26 of last year—just 17 months after the case was argued—that no, taxing  clubs that serve liquor (or allow it to be brought in) where nude or semi-nude dancing takes place to fund organizations that have nothing whatever to do with nude dancing is not a violation of the clubs' First Amendment rights. And now, perhaps in part because the Texas high court remanded the case to the district court, the U.S. Supreme Court has refused to review the decision.

"So we're now going back to the Texas trial court under a state constitutional issue which I think is interesting at least—I think it's humorous, actually," said one local attorney familiar with the case. "The law as enacted allocated funds to women's sexual assault programs and indigents' health care. The Texas Constitution, in Article 7 Section 3, provides that any occupation tax—and we contend this is an occupation tax on adult cabarets that have alcohol—if you enact an occupation tax, one-quarter of all revenues from that occupation tax must go to the public schools of Texas; that's in our Constitution. So it's one of those things where they would have to go back and correct it to follow the Constitution, or somehow construe it as not an occupation tax."

Indeed; as far as Texas Comptroller Susan Combs and Attorney General Greg Abbott are concerned, there's nothing content-based about the tax.

"The Comptroller argues that the fee is directed, not at expression in nude dancing, but at the negative secondary effects of nude entertainment, especially in the presence of alcohol — rape, sexual assault, prostitution, disorderly conduct, and a variety of other crimes and social ills — and in this respect is similar to the zoning ordinance the Supreme Court upheld in City of Los Angeles v. Alameda Books, Inc.," the Texas Supreme Court noted.

But even though the Court of Appeals en banc panel, on rehearing, properly rejected that argument, the Texas Supremes decided, based on a Utah Supreme Court ruling in Bushco v. Utah State Tax Commission, as well as sections of the U.S. Supreme Court rulings in both Alameda Books and City of Erie v. Pap's AM—particularly the part where Justice Sandra Day O'Connor pontificated that nude dancing "falls only within the outer ambit of the First Amendment’s protection."

In other words, nude erotic speech isn't as constitutionally cuddly as, say, whatever Newt Gingrich is jabbering about today.

Indeed, the Pap's AM decision claimed that Erie wasn't targeting nude expression—heaven forfend!—but rather the "secondary effects" of that nude expression—even though the city had introduced virtually no evidence that Kandyland, the Pennsylvania club (which had closed during the pendency of the litigation), had caused sexual assaults or decreased property values in the surrounding neighborhood. The Supremes felt, therefore, that "the city must be allowed a reasonable opportunity to experiment with solutions to admittedly serious problems" and "must balance its efforts to address the problem with the requirement that the restriction be no greater than necessary to further the city’s interest."

But though the U.S. Supreme Court's response to Pap's owner's arguments was that putting a g-string and pasties on dancers had only a tiny effect on their expressive message—though interestingly, no one appears to have asked club attendees whether they'd agree with that assessment—imposing a tax on such entertainment on the basis of alleged secondary effects should be a different kettle of fish.

But again, no—and not only was this tax constitutional as far as the Texas Supremes were concerned, it didn't even violate Justice Anthony Kennedy's proscription in Alameda Books that, "[T]he necessary rationale for applying intermediate scrutiny is the promise that zoning ordinances like this one may reduce the costs of secondary effects without substantially reducing speech. For this reason, it does not suffice to say that inconvenience will reduce demand and fewer patrons will lead to fewer secondary effects. This reasoning would as easily justify a content-based tax: Increased prices will reduce demand, and fewer customers will mean fewer secondary effects. But a content-based tax may not be justified in this manner. It is no trick to reduce secondary effects by reducing speech or its audience; but a city may not attack secondary effects indirectly by attacking speech." [Emphasis added]

For the Texas Supreme Court, the reason Justice Kennedy's disapproval of a content-based tax didn't apply to the Texas Entertainment Association (TEA) was because of that ol' devil liquor.

"The court of appeals also concluded that the fee is content-based because it singles out nude dancing, as opposed to all nudity, and, and so 'target[s] a specific class of First Amendment speakers'," Justice Nathan L. Hecht wrote for the court majority. "The court deemed it immaterial that the fee does not apply to nude dancing where alcohol is not consumed, or to other forms of expression involving nudity. We disagree. The fee is not aimed at any expressive content of nude dancing but at the secondary effects of the expression in the presence of alcohol."

Of course, the fee isn't applied to bars that serve alcohol but where no nude dancing is allowed, but then, nobody's proposed such a tax based on the secondary effects of liquor-only businesses.

"Respondents do not deny the existence of such [secondary] effects, which the Supreme Court has repeatedly recognized, or that they are especially associated with alcohol-consumption," the Texas Supreme Court ruled. "Respondents have not challenged the trial court’s finding that the Comptroller 'presented persuasive trial evidence supporting a possible link between the business activity subject to the tax and the secondary effects' associated with sexual abuse. Rather, they argue that the fee does nothing to reduce secondary effects. But logic and the evidence indicate that the fee provides some discouragement to combining nude dancing with alcohol consumption."

And the fact that strip clubs make most of their money from liquor sales rather than entry fees? That's of no consequence, even when "logic and the evidence" somehow fail to note that suppressing liquor sales will have the effect of suppressing expressive speech when the clubs close because they've suddenly become unprofitable!

True, the Texas Supremes rejected a slew of bogus arguments by the Comptroller, including that nude dancing is meant to cause secondary effects, and one from the TEA that "the lack of discussion about reduction of secondary effects during the legislative process shows that such reduction was not the fee’s purpose," but nonetheless, their bottom line was, "The fee in this case is clearly directed, not at expression in nude dancing, but at the secondary effects of nude dancing when alcohol is being consumed. An adult entertainment business can avoid the fee altogether simply by not allowing alcohol to be consumed. For these reasons, we conclude that the fee is not intended to suppress expression in nude dancing."

"If you read the Texas Supreme Court's opinion, you'll see that they treat this tax as you would a public nudity statute or zoning ordinance, and ignore the fact that it's a tax or fee," AVN's attorney source said. "So in terms of the secondary effects question of how does the fee impact secondary effects, that's the big question. It wasn't designed to do it; it was designed to raise money for women's shelters and indigent health, but the state defends it as targeting secondary effects, so the question is, how does this fee or tax impact secondary effects?"

Good question—and one that hopefully will be resolved in the clubs' favor when the district court again hears argument in this case.