RALEIGH, N.C.—Lawmakers in the North Carolina state legislature are considering a proposed "harmful materials tax" on all adult content sold through physical retailers throughout the state's jurisdiction. The proposed bill, Senate Bill (SB) 1007, was placed on first reading in the Senate on Monday.
SB 1007 enacts a so-called "harmful materials tax" on "prurient visual materials" deemed harmful to minors but otherwise legal. The tax is a 10 percent excise levy on sales of adult content through physical, brick-and-mortar locations throughout the state's jurisdiction. Brick-and-mortar locations include adult bookstores, theatres and other retailers.
The tax applies to gross receipts on sales of adult content through these businesses. The classification of "harmful to minors" is defined in the legislation as "any material or performance that depicts sexually explicit nudity or sexual activity."
SB 1007 attempts to integrate the Miller test for obscenity to determine whether a company is a so-called "harmful materials vendor."
According to the bill language, materials deemed "harmful" would include: "Pictures, drawings, video recordings, films, or other visual or physical depictions or representations, including digital or computer-generated visual depictions or representations created, adapted, or modified by technological means, such as algorithms or artificial intelligence, but not material consisting entirely of written words."
Further, "harmful materials vendors" would be required to register with the North Carolina Department of Revenue and its leadership, Secretary of Revenue McKinley Wooten, Jr. The registration is useful to track revenue generation from the proposed tax levy of 10 percent.
If SB 1007 were to become law, tax revenues generated would be distributed as such: 50 percent to the state's Administrative Office of the Courts to further allocate the funds for the North Carolina Human Trafficking Commission, and the remainder to the Domestic Violence Center Fund, which is the program set up to counter domestic violence in the state.
The bill adds that the state Department of Health and Human Services would coordinate with the North Carolina Human Trafficking Commission and the North Carolina Restaurant and Lodging Association trade group to "develop a training course, or identify existing training courses, to inform and educate individuals about human trafficking."
Ultimately, the proposed legislation attempts to lump together adult entertainment content with criminal activity like trafficking. This presents a clear conflict with the First Amendment, two attorneys explained to AVN.
Corey Silverstein of the Michigan-based Silverstein Legal said that this proposal, in particular, is "presumptively unconstitutional and subject to strict scrutiny."
"This proposal raises serious constitutional concerns because it appears to single out a specific category of protected speech—adult material—for differential taxation," Silverstein explained. "Adult content, while controversial, is unquestionably protected by the First Amendment for consenting adults."
He added, "Laws that impose unique financial penalties on that category of speech—whether through taxes, fees or regulatory burdens—have repeatedly been struck down when they function as a de facto restriction or chilling mechanism on lawful expression. There are also potential equal protection and viewpoint discrimination issues. If the state is taxing only adult-oriented materials, but not comparable expressive content, that creates a discriminatory scheme that targets a disfavored industry rather than applying neutral tax principles."
Lawrence Walters of the Florida-based Walters Law Group specified that he is concerned about this bill being a part of a larger trend of porn-targeted excise taxes in other states. The measures he refers to have been adopted and implemented in states like Utah (2 percent) and Alabama (10 percent).
Walters said, "This is the latest in the new wave of adult content tax legislation, which seems to be catching fire like the age verification laws of the last couple of years. Hopefully, one of these laws will be successfully challenged on First Amendment grounds as an unconstitutional tax on free expression."
North Carolina is already a tumultuous environment for the wider adult entertainment market. The Tar Heel State has age verification targeting pornography platforms in place, and a controversial recordkeeping statute that directly contradicts existing record-keeping rules at the federal level.
The federal record-keeping requirement for porn production is 18 U.S. Code § 2257 and is enforced by the U.S. Justice Department's Child Exploitation and Obscenity Section.
