Utah Supremes: 10% Tax on Strip Clubs is Constitutional

SALT LAKE CITY, UT—The Utah Supreme Court has ruled that a state tax on strip clubs is constitutional but that the same tax on escort services is not.

Passed in 2004, the tax levies a statewide 10 percent tax on admission and user fees charged by sexually-explicit businesses, defined as any business where a “nude or partially denuded” employee or contractor “performs any service. Utah-produced merchandise, food and drinks sold by these businesses also are subject to the tax.

The statute also levies a tax on escort services, which are defined as “any person who furnishes or arranges for an escort who is compensated to accompany another individual for companionship. An escort is “any individual who is available to the public for the purpose of accompanying another individual” for compensated companionship.

Associate Chief Justice Matthew B. Durrant, in an opinion issued Friday that relied heavily on two U.S. Supreme Court cases, City of Erie v. Pap’s A.M (2000) and United States v. O'Brien (1968) ["Where the Court rejected the proposition that a 'limitless variety of conduct' qualifies as speech simply because it is potentially expressive"], said that the state's Sexually Explicit Business and Escort Service Tax is content-neutral when applied to nudity.

"In this case, application of the tax is triggered by nudity, which the Supreme Court has specifically declared 'is not an inherently expressive condition," Durrant wrote. "Because it is not inherently expressive, nudity is unprotected conduct rather than protected expression."

The Court, he said, rejected the argument that a ban on nudity was necessarily a ban on the message conveyed, distinguishing nudity as a means of expression rather than protected expression itself. 

"Additionally," Durrant added, "there is nothing in the text or structure of the tax itself establishing that the legislature’s predominant purpose in enacting the tax was to suppress erotic nude dancing. The tax is generally applicable; it applies to every business that employs nudity more than 30 days during the calendar year, regardless of whether that business employs nudity to convey an expressive message—erotic or otherwise."

Conceding that the 30 day exemption period in the law could be viewed as supporting the conclusion that the tax was enacted with an intent to target strip clubs, Durrant said, "One could also view [it] as an attempt to balance the state interest in providing sex offender treatment against the incidental burdens imposed on protected expression."

Regarding the taxing of escort services, Durrant found that the language was fatally overbroad, but opened the door to a legislative revision that included more specific language. "Nowhere does the statute define an escort in terms of nudity," he wrote. "The statute also fails to define the term 'companionship.' Therefore, according to the plain terms of the statute, individuals who are paid for providing care for the elderly as well as those who are paid as tour guides would fall within the definition of an 'escort,' and any person or business who employs them would be subject to the tax."

The lone dissenter, Chief Justice Christine Durham, agreed with the majority's opinion regarding escort services, but took a polar opposite position with respect to the tax on strip clubs.

"Despite the majority’s efforts to demonstrate otherwise," she wrote, "this case is not the same as Erie. 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 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.

"Despite the Commission’s arguments to the contrary," she continued, "it has failed to identify any secondary effect that the tax is designed to regulate. There is no concern about property values, crime, prostitution, sexually transmitted diseases, public intoxication, or other secondary effects in the neighborhoods surrounding the businesses. All the Commission argues is the effect on sex offenders 'in general,' without the benefit of any data identifying or establishing such effects. Moreover, the Commission does not claim that the sex offenders’ crimes were connected in some way to the neighborhoods surrounding the businesses being taxed."