Staying Abreast of Tax Debate

'Titty tax' law hangs in the balance

By Richard Whittaker, Fri., March 13, 2009

The infamous "titty tax" is still fighting its way through the courts. Now there's a second battle, as rival bills with replacement taxes make their way through the House.

In 2007, Rep. Ellen Cohen, D-Houston, authored House Bill 1751, levying a $5 surcharge per customer entering a sexually oriented business where alcohol is served. The bill passed but is now stuck in the 3rd U.S. Court of Appeals after being ruled unconstitutional – and the $11.2 million it raised for sexual-assault survivor programs and indigent health care is locked in state coffers until the case is settled. So on March 2, Cohen filed HB 2070, making several changes including dropping the surcharge to $3, but fellow Houston Dem Rep. Senfronia Thompson had already filed HB 982, levying a flat 10% tax on admission fees. Cohen's proposal sends the surcharge revenue to the sexual-assault program fund, while Thompson's bill splits the tax revenue between that fund, the foundation school fund, and general revenue projects.

Cohen's chief of staff, Bill Kelly, called HB 2070 less a replacement and more "a reform bill." But Brete Anderson, Thompson's legislative director, said that while Cohen's proposal fixed several problems, it did not solve a fundamental stumbling block. "It's an unconstitutional tax on expression," he said. He noted that Thompson's tax is modeled on similar laws in 10 other states, all considered constitutional.

So what about the money for victim support? Kelly called HB 2070 "the best chance for providing the revenue for statewide survivor programs." Anderson countered that his office is still waiting on revenue estimates for HB 982 from the comptroller's staff. They're cautious after calculating that the $5 surcharge would raise $87 million in the first biennium, when it is on track to raise only $19 million. Working on new data on sexually oriented businesses from a University of Texas study, Kelly said he's confident in new estimates that the $3 surcharge will produce $18 million a year.

However, while HB 1751 is still in court and may remain there for years, Anderson said he doesn't expect any opposition from sexually oriented businesses for Thompson's bill, because it would not affect the cover-free lunchtime trade and gives the businesses a tax credit on fees already paid under HB 1751. While he applauded Cohen's intentions, with Thompson's bill, he said, "we can start getting money to people who need help now, rather than waiting 3½ years for a bill to go through the courts."

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