Less than a week after attempts to reform the state's controversial $5 admissions surcharge on sexually oriented businesses failed at the Legislature, supporters of the "titty tax" – enacted in 2007 – were dealt another blow when a second court dismissed the fee as unconstitutional. But the Attorney General's Office is pressing on and has asked the state Supreme Court for yet another appeal.
In a 2-1 decision June 5, the 3rd Court of Appeals upheld a 2008 judgment by Travis County District Judge Scott Jenkins that the surcharge is an unconstitutional tax on content. The court ruled in favor of the Texas Entertainment Association, an adult cabaret trade group, and Karpod Inc., the management firm of Players bar in Amarillo, which argued that the tax on sexually oriented businesses, or SOBs, that serve alcohol is simply a tax on free speech. First Amendment experts have also voiced concerns that the language is so broad that it could cover theatrical performances including partial nudity, or even fashion shows, if alcohol is served. In the majority opinion, written by Justice Diane Henson and concurred with by Chief Justice Woody Jones, the court cited the precedent of Carey v. Population Services International: "The fact that protected speech may be offensive to some does not justify its suppression." The court ordered the state to stop assessment and collection.
But on June 11, Solicitor General James Ho submitted a petition of review to the Texas Supreme Court, asking it to overturn the judgments by both lower courts and reinstate the tax. (The Supreme Court must first agree to consider the case.) Invoking the founding fathers and their intentions for the First Amendment, he called the judgment "an unprecedented interference with government efforts to regulate alcohol and combat rape." Because the appeal has been lodged, the state will keep collecting the surcharge, in spite of the two rulings that it is unconstitutional.
Revenue from the surcharge is supposed to help fund sexual assault programs and indigent health-care services – two areas where all parties agree the state has been remiss. But that revenue has dramatically underperformed since the initial projection of $87 million over the biennium – based on collections over the first year, it's currently on course for $19 million, tucked away until the court cases finish. Even should the Supreme Court agree to review the case, and the state win that and any future appeals, it could still take years before the funds can be spent.
Somewhat surprisingly, the Texas Association Against Sexual Assault, which supports the surcharge, is treating the appeals decision as a victory. In a press release, TAASA Deputy Director Torie Camp said she was "thrilled that the momentum has shifted dramatically in our favor."
When called for clarification, Camp cited what she called "a strong dissent by Justice David Puryear [that] really shows there's more debate and conversation to be had." Puryear accepted Ho's argument that the case is about alcohol, not nudity, and that 40 years of U.S. Supreme Court precedents mean that states can bar nude dancing establishments from allowing customers to drink. "If you can ban it, you can discourage it," Ho told the House Ways and Means Committee during testimony earlier this year. "The message of the law is simple: Remove the alcohol, avoid the fee." The majority opinion rejected without question "the Comptroller's characterization of the SOB tax as an alcohol regulation," as well as the argument that, due to sovereign immunity, the Texas Entertainment Association never should have been allowed to bring the suit in the first place. But Ho's latest petition to the Supreme Court argues that the court should overrule three of the four judges who have heard the case and side with Puryear instead.
Of course, if the appellate court had rendered its judgment in May, there still might have been time to pass House Bill 982 by Rep. Senfronia Thompson, D-Houston. That bill, modeled on similar constitutional legislation in other states and backed by the Texas Entertainment Association, would have replaced the $5 charge with a 10% tax on admissions. All that money would have gone to sexual assault programs, but HB 982 was ultimately derailed after TAASA complained that it did not guarantee enough cash. When asked whether she had any regrets over scuppering an assured revenue stream in favor of hoping the state could overturn its losing streak in court, Camp said: "None at all. We still feel really good with where we are at."
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