HOUSTON, TX — Rick’s Cabaret International, Inc. released a statement today announcing that it is considering an appeal of a Texas Supreme Court decision upholding a state law requiring strip clubs to pay a $5 fee for every club visitor.
On Friday August 26, the Texas Supreme Court reversed the judgment of a Texas Court of Appeals, ruling that the SOB Fee does not violate the First Amendment to the U.S. Constitution and remanded the case to the District Court to determine whether the fee violates the Texas Constitution.
In a Form 8-K filing with the Securities and Exchange Commission signed by Rick’s Cabaret President and CEO, Eric Langan, the company said, “We disagree with the decision of the Texas Supreme Court. Both we and the TEA [Texas Entertainment Association, a trade group] are currently considering whether to appeal the Texas Supreme Court's decision to the U.S. Supreme Court (regarding the constitutionality of the fee under the First Amendment of the U.S. Constitution). Additionally, our claims regarding the Texas Constitution have not yet been addressed by the courts. We do not plan to make any payments of these taxes while the case is pending in the courts. However, we will continue to accrue and expense the potential tax liability on our financial statements, so any ultimate negative ruling will not have any effect on our income statement and will only affect our balance sheet. If the decision is ultimately found in our favor, as we believe it will be, then we will have a one-time gain of the entire amount previously expensed. Further, we have filed a separate lawsuit in which we raise additional challenges to the statute imposing the fee or tax. The courts have not yet addressed these additional claims.
“We have paid the tax for the first five calendar quarters under protest and expensed the tax in our consolidated financial statements (as filed with the SEC), except for two locations in Dallas where the taxes have not been paid, but we are accruing and expensing the liability. For the subsequent quarters, as a result of theThird Court’s decision, we accrued the fee, but did not pay the State. As of June 30, 2011, the Company had approximately $6.1 million in accrued liabilities for this tax. We have paid more than $2 million to the State ofTexassince the inception of the tax.
A copy of the company’s Form 8-K is available at its investor relations website.
AVN Chief Legal Analyst Mark Kernes analyzed the Texas Supreme Court's ruling here.
