August 4, 2008

Pole Tax Follies

By: Elizabeth Nolan Brown

In 2007, Texas’ adult entertainment industry was brought into the national spotlight when state legislators tried to levy a $5 admissions tax on all strip club patrons. Proceeds from the measure — coyly dubbed the “pole tax” by opponents and the media — would be used to help sexual assault victims and the uninsured.

Club owners sued, alleging the tax — in addition to being economically perilous to smaller clubs and linking strip club patrons unfairly to sex crimes — violated the right of freedom of expression. This might sound like dubious legal reasoning, but it’s not: Entering strip clubs is protected First Amendment activity, meaning a state must demonstrate that any restriction of this right is “narrowly tailored” to achieve a “compelling government interest.”

State Representative and bill sponsor Ellen Cohen claimed linking strip clubs to sexual assault was fair because both affect women. District Judge Scott Jenkins was not impressed. “There is no evidence that combining alcohol with nude erotic dancing causes dancers to be uninsured, that any dancer is in fact uninsured, or that any uninsured dancer could qualify for assistance,” wrote the judge, striking down the law (which went into effect January 2008) as unconstitutional in March.

Were the Texas situation all there was to this story, we might celebrate this as a minor civil libertarian victory — legislators pass unconstitutional tax, judge strikes down said tax, justice is served, freedom prevails.

This is not the case.

Since Texas first introduced the pole tax, at least 12 other states have followed suit, says Angelina Spencer, executive director of the Association of Club Executives. The proposals varied in particulars (Florida suggested a $2 entrance tax; Tennessee $10) and means of taxation (in some states, the tax would be on clubs’ gross receipts, as opposed to admissions), but all shared a similar modus operandi: imposing a punitive tax on an unpopular activity in order to fund programs or services that had very little or no correlation to the activity being taxed.

“It’s a very disturbing trend, because it allows legislators to sell more government to their constituents than they’re willing or able to pay for,” says Joseph Henchman, counsel for the Tax Foundation, a nonpartisan tax research group based in Washington, D.C. The message it sends, he says, is that, “we’ll tax these other people and give you services…It creates big public finance problems.”

Rhode Island recently proposed a 25 percent tax on all proceeds from sales of strip club food, drinks, and admission. The majority of the funds would go to treatment for convicted sexual offenders, with 15 percent allotted to prosecuting people who solicit children on the Internet.

But why should strip club owners and employees be burdened with the cost of treating sexual predators?

At a hearing on the issue in May, State Representative Elizabeth Dennigan attempted justification by citing a study claiming “most women working in [strip clubs] stated they would rather not be working in this industry.” That’s probably true. But it’s also true that most people working at Burger King would probably rather be NBA stars or reality TV contestants. That doesn’t, however, mean taxing them out of a job would get them any closer to achieving those goals.

In California, Assemblyman Charles Calderon also proposed a 25 percent tax on all adult entertainment, including porn videos and strip clubs. Proceeds from the proposed tax – which, amidst heavy criticism, was reduced to 8.3 percent in June – would go into an “Adult Entertainment Impact Fund,” currently slated to fund absolutely nothing less vague than “combating the negative secondary effects of the adult entertainment industry.”

The doctrine of “secondary effects” — the idea that adult entertainment leads to other social ills, such as theft, domestic abuse, and rape — has become pretty much gospel in some religious and legislative circles. It’s a convenient theory: If strip clubs really do cause so many problems that municipalities are then forced to deal with, extra taxes and regulations are more easily justifiable. It’s the same logic behind taxes on tobacco, fatty foods, and video games that have been introduced in recent years.

But the problem with the secondary effects doctrine is that, well, it’s not true. Many studies that have “proved” the existence of secondary effects have (innocently, no doubt) conflated correlation and causation, noting that areas heavy with strip clubs – which are often located in poorer or seedier parts of town – were also heavy on violence and crime.

In the only published, peer-reviewed study of secondary effects, the authors found no more incidents of crime in areas surrounding strip clubs than in control areas without adult businesses. And a 2004 review of secondary effects literature led by University of Central Florida psychology professor Randy D. Fisher found “adult businesses such as nude and semi-nude entertainment facilities have not been identified as crime hotspots” but rather that “research … would suggest that alcohol serving establishments, hotels and restaurants associated with nightlife activities would most likely be crime hotspots.”

Fisher’s own empirical study of a particular area in Florida found “no support for the prediction from social learning theory that rates of rape would be positively associated with the prevalence of businesses offering nude or semi-nude entertainment. The prevalence of nonsexual adult businesses is more powerfully associated with rates of crime than the prevalence of nude and semi-nude businesses.”

To put it in less academic terms: “It’s BS,” says Spencer, who was a dancer herself in college before moving to DC to work for ACE and open her own public relations firm. “When you start making nonexistent correlations as an excuse to pass taxes, where will it end? I’d be crucified if I were to say, ‘Hey, let’s tax priests to fund pedophile programs because some priests have abused children.’ It’s the same premise with strip clubs and sexual assault.”

Apparently not one to learn from other state legislatures’ mistakes,Pennsylvania State Rep. Paul Clymer waited until after the Texas pole tax was struck down as unconstitutional to introduce nearly identical legislation in his state in June. The “Sexually Oriented Business Revenue Act,” which now has 17 co-sponsors, stipulates that proceeds from the tax would go to funding the Pennsylvania Coalition Against Rape. Clymer said this was appropriate because strip clubs lead to social ills such as sexual assault and drug and alcohol abuse. He told local newspaper the Intelligencer in May that he was “in full confidence” that the bill “would pass constitutional muster.”

Henchman says he has not read the Pennsylvania law but is skeptical nonetheless. It’s a “tax on expressive activity,” he points out. “It’d be very hard to rework this particular tax to make it constitutional.”

Perhaps Clymer was buoyed by the fact that Texas seems to think it doesn’t need the law on its side to carry on with its plan. Despite the Texas District Court’s ruling that the pole tax was invalid and unconstitutional, strip clubs across the state received notice in April from the Texas Comptroller that the admittance taxes were due.

Although the court ruled that clubs were “permanently enjoined” from assessing or collecting the tax, the Texas Attorney General’s office said the appeal it filed on April 7 effectively suspends the Court’s judgment and injunction.

Will a low dollar admissions tax be the end of strip clubs as we know them? Of course not, or at least not any more than the ever-increasing cigarette taxes will finally make the nation’s smokers butt out for good. But the extra fee may deter some customers from coming, especially the kinds of low-income customers that frequent the smaller, less-expensive, and less-profitable clubs. Smaller clubs may go out of business, and employees of these smaller clubs — often individuals with few other employment prospects — forced out of jobs.

Even for wealthier patrons and more prosperous clubs, it may mean $5 less the customers spend on food, alcohol, or services. And any potential lost revenue the club owners may contend with — real or imagined — will be passed on to the dancers in the form of “house fees,” the money they are required to pay club owners for letting them perform at their clubs. Dancers, not club owners, will be the hardest hit.

But it will not just be the dancers. These sorts of laws “also negatively impact and deplete attendant jobs such as liquor distributors, dry cleaners, nanny services, spas, supply companies, cleaning crews” and others, says Spencer. “It’s a trickle effect. Infringe on the adult entertainment job market and you close up an approximately $240 million revenue generating machine in your state.”

Pole taxes and other strip club regulations — such as a proposed bill in New York that would require all exotic dancers in to obtain a permit in order to dance or an Ohio law passed in 2007 that requires dancers be fully clothed after midnight and prohibits physical contact (be it a lap dance, a hug or a handshake) or any kind — are also unfair to state taxpayers at large, who will be stuck footing the bill for the extra bureaucracy and manpower needed for enforcement and the inevitable legal fees incurred defending constitutionally questionable policies.

“The reason that legislatures are introducing adult entertainment taxes is because most states are broke and in dire need of revenue streams to fund programs,” says Spencer. “But the adult club industry should not have to bear the selective and arbitrary burden of an extraordinary tax.”

–Elizabeth Nolan Brown is a writer in Washington, D.C. She blogs at elizabethnolanbrown.wordpress.com.

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