Texas Court Upholds Strip Club Tax — How Do Excise Taxes Affect Businesses?
A Texas appellate court recently upheld the state's so-called “pole tax,” a $5.00-per-customer tax imposed on strip clubs. The law was enacted in 2007 and unsuccessfully challenged twice on different grounds. The first appeal challenged the constitutionality of the tax on free speech grounds, but the Texas Supreme Court overruled that argument two years ago. This time around, the court ruled that the tax is not an occupational tax, as claimed by the appellants, but instead is an excise tax.
What is an excise tax?
An excise tax, such as those imposed on tobacco products and alcohol, are specific to certain products or services and are normally passed on to consumers via higher prices. In this case, the tax requires businesses which provide nude entertainment and sell or allow alcohol consumption on the premises to collect $5.00 per customer. The tax receipts are earmarked to fund sexual assault programs, and Texas has reportedly collected $17 million thus far.
How does an excise tax affect businesses?
Businesses tend to dislike excise taxes in general, for driving up consumer prices and adding to the cost of doing business. Some consumers are inevitably priced out of the market, even though many businesses lower profit margins in an effort to keep prices down and retain customers.
The foreseeable result is a reduction in gross revenues and a growing tax compliance burden for businesses. Even though consumers are, in theory, the ones paying the tax, it is a business's job to collect, report and remit excise taxes to the government.
Is this tax constitutional?
The Texas Entertainment Association, whose members include businesses affected by the “pole tax,” led the latest appeal, arguing it is an occupation tax rather than an excise tax and, as such, the tax is unconstitutional because it doesn't direct 25 percent to fund public education. The association also argued unfairness, because the law does not apply to lingerie modeling studios or adult movie arcades which cater to single customers.
The appellate court disagreed, ruling that the tax is in fact an excise tax which the legislature can spend any way it sees fit. The court also said the tax is fair because it's reasonably related to the purpose for which it was imposed, i.e., sexual assault is more likely to occur if there are two or more people in an audience where alcohol is sold or allowed.
Despite its most recent win, the State of Texas can't claim victory yet. The time limit for the Texas Entertainment Association to raise the appeal to the next level — the Texas Supreme Court — has not yet expired.
Mind your business compliance P's and Q's
The bottom line is this: Whether or not you agree with particular excise taxes or other compliance requirements, your business is subject to compliance audits and risks penalties for errors and omissions, intentional or otherwise.
For assistance making sure your business is meeting its compliance requirements, or to get answers to other business law questions, call one of our experienced Bryan-College Station, Texas business law attorneys at Peterson Law Group at 979-703-7014” target=”_blank”>979-703-7014, or fill out our online contact form. Our attorneys analyze the law as it relates to your business and provide sound advice for your peace of mind.