Strip clubs argue tax on admission fee unfairly targets dancers

A group of eight gentlemen’s clubs tried to convince the Nevada Supreme Court on Wednesday that dancing on stage in only the skimpiest clothing qualifies as free expression under the First Amendment.

As such, the clubs argued, the court should throw out Nevada’s live entertainment tax, which charges patrons 10 percent on the admission fee, because it unfairly singles them out.

“The United States Supreme Court has said time and time again that if, in fact, there is a taxation on First Amendment-protected activity … it is unconstitutional in and of itself,” said attorney Bradley Schafer, representing the clubs.

In particular, he cited comments during the 2005 Legislature, when the tax was revised, expressing a desire to rein in the strip clubs. Over time, he said, about two dozen types of entertainment won exemptions from the tax, ranging from minor league baseball to NASCAR racing to background music.

The state’s Department of Taxation defended the tax as not targeting the entertainment itself, only the admission price. This made it just as valid as collecting sales taxes on books, said Blake Doerr, senior deputy attorney general.

“It is not a tax on a First Amendment activity,” he said. “It is a tax on a transaction.”

All that the 2005 legislation did was to extend the live entertainment tax already in place at casinos and some venues to generate more revenue for the state, Doerr said.

The tax was broadened during a 2003 special session to apply not only to casinos but to any venue with live entertainment.

An amendment in 2005, which extended the tax again, this time from places with a 300-seat capacity down to 200 seats, drew the strip clubs’ challenge.

In 2006, the clubs mounted challenges in both federal and state courts. They lost in both, most recently when Clark County District Judge Elizabeth Gonzalez dismissed the case in 2011. That set the stage for the appeal.

The clubs also lost a parallel action seeking refunds of the taxes they had already paid.

That argument, also heard Wednesday by the Nevada Supreme Court, centered on procedural questions of whether the rules governing refund requests had changed midcase.

The 2005 changes to the tax and the exemptions to other types of entertainment effectively targeted the clubs by elimination, Schafer said.

“They (the state) don’t even attempt to justify the distinction of the 25 exemptions and exceptions (to the tax),” he said.

This fit with the agenda advanced by some legislators, he said.

Schafer calculated that strip clubs, including those that did not join the lawsuit, paid about 90 percent of the taxes.

However, Doerr noted that the Taxation Department collects only about 7 percent of the entertainment tax, with the rest falling under the Nevada Gaming Control Board. Taking a broad approach, the clubs accounted for only about 3 percent of the tax receipts.

Estimates are the tax nets $130 million a year.

Doerr called the legislative debate irrelevant because it pertained to a law that was not enacted.

“There has to be a chilling effect (on the content) for this to be a First Amendment question,” he said. Because dancers did not have to pay a tax to go on stage, it did not change their performances, he said.

Justices heard only arguments and will rule on the case later.

Contact Tim O’Reiley at toreiley@reviewjournal.com or at 702-387-5290.