Supreme Court Denies Cert on Utah Nudity Tax Case

WASHINGTON, D.C.—In a move that could spell disaster for adult businesses countrywide, the U.S. Supreme Court today denied the petition for certiorari filed by Denali LLC, a Utah-based strip club, to overturn a Utah tax which is imposed only on adult businesses which provide nude entertainment.

"It's a gross receipts tax," explained Andrew McCullough, attorney for Denali and co-petitioner BushCo, which runs a Utah-based escort service. "If you go in and you buy a drink, it's 10 percent of the drink. I have only one client right now [Denali LLC] who's going to consider this a disaster, and he may go out of business for it. Denali is the only nude dancing establishment actually running in the state of Utah right now, and the tax could kill him off."

The tax issue first came before the Utah Supreme Court in November of last year, and while that court found that the tax as applied to escort services was unconstitutionally vague, it upheld the tax against nude dance clubs—of which Denali is reportedly the only one in the state—as a "content-neutral" regulation of the business.

Among the receipts covered by the tax are club admission fees, "user fees"—a term which neither the court nor the law itself explains—sales of "tangible personal property"—anything from t-shirts to adult DVDs—food and beverages, and "any service," a category that would probably include tips received by the dancers.

According to the Utah Supreme Court's decision, the taxes collected will be split between the Utah Department of Corrections' Adult Probation and Parole Division and the Attorney General’s office, with portions of the proceeds dedicated to providing "treatment services" to individuals convicted of sex offenses, other individuals who are subject to Adult Probation and Parole jurisdiction, and juveniles. The taxes would also partially fund a task force that "investigates and prosecutes individuals who use the Internet to commit crimes against children." (This, of course, is irrespective of the fact that no legitimate scientific research has found a provable link between nude dancing and the commission of sex offenses, nor between the nude dancing and internet child predators.)

The Utah Supreme Court upheld the tax in part because it allegedly didn't target the dancing itself, which has long been held to be expressive behavior protected under the First Amendment, but merely establishments that employed workers who were nude "during at least 30 consecutive or nonconsecutive days within a calendar year." The court apparently felt that nudity itself expresses no message—a holding that would be at odds with several U.S. Supreme Court decisions.

In any case, the Utah court relied heavily on the U.S. Supreme Court's 2000 decision in City of Erie v. Pap's A.M., which also targeted nude entertainment, even though the high court acknowledged that Erie's prohibition was adopted "for the purpose of limiting a recent increase in nude live entertainment within the City."

"The Tax is also similar to the ordinance in Erie in that it places only de minimis burdens on erotic nude dancing, a type of expression lying 'only within the outer ambit of the First Amendment’s protection' and 'of a wholly different, and lesser, magnitude than the interest in untrammeled political debate'," the Utah Supreme Court held, quoting largely from the Erie decision.

However, the mere fact that the tax was imposed on businesses that featured nude dancers and not on any other business, despite the lack of evidence that the nudity created any identifiable social or legal problems, is something that the U.S. Supreme Court might well have wanted to examine more closely.

Indeed, Denali's cert petition covered all of those points, quoting everything from McCulloch v. Maryland (1819)—"That the power of taxing it by the States may be exercised so as to destroy it, is too obvious to be denied"—to Minneapolis Star v. Minnesota Commissioner of Revenue, where the U.S. Supreme Court in 1983 invalidated a "use tax" on the paper and ink used to print the plaintiff newspaper, ruling that the tax was discriminatory—and of course, City of Los Angeles v. Alameda Books, where Justice Anthony Kennedy famously opined, "a city may not regulate the secondary effects of speech by suppressing the speech itself."

"The Utah Court described the tax at issue as falling on nudity and not on expression," McCullough argued in his petition. "No business within the contemplation of the legislature, however, provided services merely by allowing nudity. Only expressive nudity was targeted. Expression is protected by the First Amendment against censorship, even when not verbal."

Chief Justice Durham, the lone dissenter to the Utah Supreme Court's opinion, apparently agreed: "Despite the majority’s efforts to demonstrate otherwise, this case is not the same as Erie," he concluded. "Rather, the Utah Legislature has enacted a statute that, by its own terms, makes it a content-based tax on First Amendment expressive speech; hence strict scrutiny should apply. Because the Utah State Tax Commission (the Commission) cannot show that the Tax is necessary to serve a compelling state interest and is narrowly tailored to that end, I would hold that the Tax violates the First Amendment to the United States Constitution."

The Association of Club Executives, the trade association of adult nightclubs, filed an amicus brief supporting Denali's position, and raised additional points, including the fact that the nature of the tax—on entertainment rather than politics—warranted prompt review by the high court so as to avoid the collection of an unconstitutional tax, and also that the high court should consider the expanded use of "secondary effects" as an excuse to treat sexual speech under the intermediate scrutiny level when such speech, absent the alleged effects, would fall under strict scrutiny.

But with the cert denial by the U.S. Supreme Court, adult industry eyes have turned to the ongoing case of the $5 "entrance fee" (tax) on strip clubs enacted by the Texas legislature which was overturned by Intermediate Court of Appeals in Texas and is now before the Texas Supreme Court.

"We're waiting on a decision," said Steven Swander, one of the attorneys peripherally involved in that appeal, "and people ask me about that all the time, and my pragmatic answer is, 'January; January is when the Texas legislature will come back in session.'"

"I think where it goes from here is down to Texas," McCullough agreed. "No matter what happens in Texas, I see another petition coming and I see that one being accepted. Let's hope Texas comes through for us and we may yet find a way to make something out of this, but as of right now, you'd better be watching this issue closely."

But, "We don't know what the Texas Supreme Court will do on this issue," Swander cautioned. "It's all one party and sometimes you think you read their decisions as being fairly political, but you can't count of them, for sure, on something like this."

In the meantime, as the Associated Press has undoubtedly correctly reported, "Other states have been waiting to see the outcome of this case before trying to enact their own taxes," and McCullough fears there may be worse statutes to come even in Utah itself.

"This is just a nude dancing and escort service tax," McCullough acknowledged, "but obviously enough, flushed with victory, they could expand it. So we're talking about nude dancing today, but they could easily add 'and adult bookstores' to the tax code, and I represent three of them in Utah, and I tried to get them involved in the lawsuit, and they said, 'No, we don't want to get involved until it's actually on our doorstep.'"

Apparently, it's time now for those Utah stores—and every other retailer in the country—to start looking through the peephole.