March 15, 2007

Adult Entertainment Fees Resurrected
in Session with Focus on Sex Themes

By Mike Hailey
Capitol Inside Editor

The "pole tax" is back - but the legislators who've revived an adult entertainment surcharge that Governor Rick Perry proposed as a source of education funding three years ago think they have a better chance of selling it with some of the revenues targeted for programs that combat sexual assault and possibly indigent health care as well.

The push for fees on adult entertainment comes at a time when lawmakers have been focusing substantial time and energy on a Texas Youth Commission sex scandal that caught them by surprise and a crackdown they'd been planning on sex offenders. But while the legislation takes aim at establishments whose orientations are sexually explicit, the sponsors of bills that would impose admissions and licensing fees on adult nightclubs in Texas aren't suggesting that there's a direct link between businesses that feature nude dancers and people who commit sex crimes.

State Rep. Ellen Cohen - a freshman Democrat who makes a living fighting domestic violence and sex abuse as the Houston Area Women’s Center president - made a pitch Wednesday to the House Ways and Means Committee for a $5 fee on admissions to "sexually oriented businesses" where live nude entertainment can be found. House Bill 1751 - the first piece of legislation that Cohen has sponsored in her debut session - essentially defines nudity as the state of being topless if the entertainers are women or having no clothes on whatsoever regardless of the gender.

While the House committee left Cohen's bill pending amid questions about its enforcement and its potential effect on First Amendment rights concerning the freedom of expression, the panel appeared relatively receptive compared to the swift burial that a similar proposal had received after being offered by the Republican governor during a special session on school finance in 2004.

Cohen's legislation would raise an estimated $87 million for the state during the next two years - according to a fiscal note that the Legislative Budget Board completed in time for the committee hearing. Twenty-percent of that - or $18 million - would go into a fund that's dedicated to the battle against sexual violence with the remainder deposited into general revenue.

Across the rotunda, State Senator Royce West dropped a plan into the mill last week that proposes an identical admissions fee for patrons at so-called gentlemen's clubs along with a $5,000 annual registration fee that the adult entertainment establishments would have to pay before they could do business in Texas. The Dallas Democrat's bill would earmark most of the money it generated for counties and hospital districts to use for the treatment of patients with no insurance. Senate Bill 1717 would carve out a maximum of $12 million every two years for sexual assault prevention, research, education, victim assistance, criminal prosecution, law enforcement training, technology at rape crisis centers and treatment programs for sex offenders in the Texas Department of Corrections and the Texas Youth Commission.

Cohen initially sought $12 million for sexual assault programs before the share they would receive was increased by 50 percent in a committee substitute after the fiscal note showed the bill raising more revenue than had been tentatively projected. On paper, the House and Senate bills appear to be pitting the uninsured against women who've been sexually assaulted for funds that a fee that customers at adult bars would pay. Behind the scenes, however, Cohen and West appear to view their efforts on the subject as a collaborative work with all bases covered in the original bills before they determine what's viable in a Legislature that's never a fan of anything that could be construed as a new tax.

Unlike some legislators who've pushed similar sin taxes and fees in a few other states, the sponsors of the legislation in Texas this year say they aren't trying to tax adult nightclubs out of business or blaming them for sexual assaults. Cohen told the Ways and Means Committee that Rick's Cabaret, which features adult entertainment at clubs in Austin, Houston, San Antonio and other cities around the country, is listed on the stock exchange and had a 12 percent jump in revenues last month.

Rick's Cabaret is listed on NASDAQ. Another company known as VGC, which owns and manages adult clubs in a half-dozen states, has performed even better on the American Stock and Options Exchange with revenues of $17 million in 2006 and more than twice that projected this year. The message that supporters of adult entertainment fees are trying to send is that the days of dives that were hangouts for motorcycle gangs have given way in some places to posh establishments with female employees in designer gowns, walls lined with plasma TVs, enormous cash flows and the potential to be a steady stream of revenue for worthy causes funded by the state.

Upscale and mainstream or seedy, adult clubs like those targeted in the legislation are part of an industry that's often associated rightly or wrongly with prostitution, drugs, lewd and lascivious behavior and the exploitation of women. In one sense, that makes them easier targets for sin taxes. At the same time, however, some conservative lawmakers don't like the idea of the state depending on revenue from businesses they consider sleazy and immoral. But advocates for adult entertainment taxes and fees contend that the businesses that would be affected revolve on a sexual theme and are logical sources of revenue as a result for programs that are needed because of behavior that's centered on sex.

While adult entertainment taxes have been approved in states such as Nevada and Utah and considered in several others, they've been tricky to administer and have usually been challenged in court. The Utah law approved in 2004 also applies to adult bookstores and escort services - and the revenues it raises goes into a fund that's used for programs aimed at domestic violence and sexual abuse. The laws that were enacted in Utah and Nevada require club owners to pay the state 10 percent of the money they collect from fees for admission. The tax also is required on food and drinks sold at businesses that offer adult entertainment in Utah. Moves to impose fees on adult entertainment have snagged in Kansas, Missouri and Rhode Island, where a tax of 25 percent was proposed.

State Rep. Jim Keffer, an Eastland Republican who chairs the Ways and Means Committee, voiced concerns about the extensive auditing that would be required to ensure that adult clubs were collecting admissions fees and remitting them to the state.

As a backup plan, Cohen has filed a similar piece of legislation that's been referred to the House Licensing and Administrative Procedures Committee. Cohen won a trip to the House when she defeated incumbent Republican Martha Wong in one of the most expensive races for the lower chamber in the state last year. The adult entertainment fee plan is the first bill that Cohen has sponsored as one of the state's newest legislators.