Topless Tax Dies in Maneuver for More Money

3rd Court of Appeals will rule on existing surcharge at sexually oriented businesses

Rep. Senfronia Thompson sponsired a competing surcharge bill, HB 982.
Rep. Senfronia Thompson sponsired a competing surcharge bill, HB 982. (Photo by Jana Birchum)

Legislative attempts to end the state's court case over the unconstitutional "titty tax" failed when lobbying killed a compromise reform bill – after it had passed both chambers. In 2007, the Legislature passed House Bill 1751, a $5 surcharge on every customer at a sexually oriented business. Though the cause is noble – to provide cash for sexual-assault victim support across the state, including in the 54 counties with no programs – a Travis County district court found that HB 1751 violated the U.S. Constitution. (The opinion did not address potential violations of the Texas Constitution or fears that it affected far more businesses and artistic endeavors than just strip clubs.) The bill is now at the heart of a long court case between the attorney general and the Texas Enter­tainment Association, the trade body of adult cabarets.

Two bills were in contention this session to resolve that fight. Rep. Senfronia Thomp­son, D-Houston, had HB 982, replacing the $5 surcharge with an allowable 10% tax on admissions fees. Rep. Ellen Cohen, D-Hous­ton, who authored HB 1751 last session, this time proposed "a cleanup bill," dropping the surcharge to $3 and clarifying where the funds went. Of the two, HB 982 had the advantage that similar surcharges in other states have passed court scrutiny as being constitutional and that the Texas Entertainment Association had pledged not to challenge it in court.

On May 12, it looked like a deal had been struck among Cohen, Thompson, and fellow Houston Dem Harold Dutton. As the Senate passed HB 982, Cohen, with Thompson by her side, brought up her bill – which Dutton then killed with a point of order (the caption, he said, did not match the bill). But HB 982 soon met the same fate. Torie Camp, deputy director of the Texas Association Against Sexual Assault, a victims' support group, described it as "a bird in the hand that wasn't going to provide much," raising a maximum of $2.4 million over the biennium against a projected $30 million from HB 1751 (Texas Entertainment Association has those figures at $8 million and $19 million). TAASA contacted senators after third reading to request a rewrite and also wrote Gov. Rick Perry, requesting that he veto the bill if it passed as it stood. (Note: First Lady Anita Perry is a former TAASA staff member.) "The response that we got was that they were well-informed on the issue," she said.

The potential veto placed Sen. John Car­o­na in a tough position. He took the extraordinary step of asking the Senate to reconsider its third vote on HB 982, allowing him to bring it back later to ensure that Cohen's bill could not be resurrected. But as pressure increased, Carona said his challenge was to craft language that would "assure more money for sexual-assault victims [and] be acceptable to the club owners." That proved impossible, and both reform bills died.

So now the state is awaiting its legal appeal in defense of HB 1751, currently with the 3rd Court of Appeals. Until that case is resolved, the revenue from the collected taxes can neither be spent nor returned to the taxpayers. While Thompson said she's "confident that the courts will rule in our favor," and Camp stressed her "great faith" in Solicitor General James Ho's ability to win the case, Carona was less certain, warning, "You never want to depend on a court case when fiscal matters are at stake."

The current appeal will probably not be the end, as both sides have sworn to fight all the way to the U.S. Supreme Court. The process could last years, but TAASA is digging in for the long haul. Camp explained, "Unfortunate­ly, sexual assault isn't going anywhere in the next 10 years, and the sexual-assault centers that serve victims will still be there."

The consequences of the case could reach beyond one Texas tax. If HB 1751 does survive the courts, Cohen said she hopes "other states will duplicate it." That's already happening: New York Democrat Felix Ortiz has introduced a bill proposing a $10 surcharge, with the money going into a crime victims' fund. Yet when Dutton's point of order killed HB 2070, he noted that it was "taxing an industry really for the privilege of doing business in the state of Texas." Echoing that concern, Carona warned, "separate and apart from this issue is the greater issue of whether or not, no matter how noble the purpose, a group can determine one day that they want to attach certain revenues from businesses that are considered to be constitutional."

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