Originally published on Forbes.com Sept 27th, 2014
When there is a decision by the Supreme Court of Nevada that includes among its plaintiffs Deja Vu Showgirls of Las Vegas, Little Darlings of Las Vegas and Crazy Horse Too Gentlemen’s Club what could it possible be about? What else but freedom of speech and the First Amendment to the Constitution of the United States? Well, also taxes of course, since I’m writing about it here rather than my alternative blog. Among the defendants is the Nevada Department of Taxation.
At issue was the application of the Nevada Live Entertainment Tax to “exotic dancing establishments” which the various establishments argued
…… is a differential tax of speakers protected under the First Amendment that triggers strict scrutiny because it discriminates on the basis of the content of taxpayer speech, targets a small group of speakers, and threatens to suppress speech.
If you are curious as to what kind of speeches the Deja Vu Showgirls of Las Vegas give, here is a sample.
About The Tax
The Nevada Live Entertainment Tax is either 5% or 10% depending on the size of the venue. In smaller venues, everything that is sold during the live entertainment is subject to the tax. It gets a little complicated, since it is not always entirely clear whether there is live entertainment going on, as this excerpt from the Revenue Department’s FAQ shows:
Most bartender activities would not qualify as live entertainment even if bottles are juggled or fancy serving techniques designed to entertain the patrons are utilized. However, if the bartenders engage in singing, dancing or acrobatics, these activities are likely to be considered live entertainment, just as if any other performer were involved.
Nothing there about how much in the way of clothes the bartenders need to be wearing. Not long after the tax was enacted, the legislature started putting in exceptions. Among them are boxing, baseball and NASCAR.
Entertainment Is Free Speech And Cannot Be Taxed?
The Court disposed of some procedural issues, which are a bit too lawyerly for me to get into, before it got to the heart of the matter. The first argument that that the clubs made was that taxing entertainment is akin to taxing speech, which is unconstitutional. That argument did not get very far. They cited a case in which Jehovah’s Witnesses complained about having to pay a flat fee for a permit.
In concluding that the ordinance was unconstitutional as applied to the petitioners, and therefore reversing their convictions, the Supreme Court recognized that “a person cannot be compelled to purchase, through a license fee or a license tax, the privilege freely granted by the constitution.”
The Court distinguished NLET from the type of tax the Witnesses were complaining about.
Appellants’ attempt to expand the applicability of Murdock’s holding to NLET, which is an excise tax on admission fees and the sale of certain products, disregards this distinction. Moreover, appellants’ expansion argument was expressly rejected by the Court in a later decision that limited Murdock’s holding “to apply only where a flat license tax operates as a prior restraint on the free exercise of religious beliefs.
It was noted that the tax was not actually a tax on the live entertainment but rather an excise on the associated business transactions. Somewhere in Nevada there must be a “gentlemen’s club” with no cover charge where the food and drinks are free and tipping is prohibited. You don’t have to pay no stinking live entertainment tax in that place. Keep looking.
Content Discrimination
The other argument is that because of the various exceptions such as boxing and NASCAR there is a discrimination between adult-oriented entertainment and family-oriented entertainment. It’s worth noting that there is something a little off about a culture that thinks it is OK for children to see people beating up on one another and crashing cars but not, post infancy anyway, female breasts. Nonetheless, maybe the clubs have something of an argument there, since “It is what it is”.
In analyzing the claim, the Court notes that the clubs are not starting off from real solid ground.
Preliminarily, we recognize that the degree of protection afforded to erotic dance under the First Amendment is uncertain.
To the extent that nude dancing is protected under the First Amendment, we acknowledge that “society’s interest in protecting this type of expression is of a wholly different, and lesser, magnitude than the interest in untrammeled political debate.”
The Court also found that the clubs did not really have a strong factual basis for their claim
Having analyzed NLET’s language, we now consider the messages of those who are and are not taxed under the statute. Appellants argue that NLET’s exemptions and exceptions are based on family-oriented versus adult-oriented messages provided at live entertainment facilities. This assertion lacks merit. Many facilities providing what appellants would classify as family-oriented live entertainment are subject to NLET, including concert venues, circuses, and fashion shows.
Further the Court did see anything in the NLET that posed a danger of the suppression of ideas.
In The End
Because NLET does not discriminate on the basis of the content of taxpayer speech, target a small group of speakers, or otherwise threaten to suppress ideas or viewpoints, we determine that heightened scrutiny does not apply. Instead, rational basis review applies, and the statute is presumed to be constitutional. We conclude that NLET is constitutional on its face because appellants have failed to demonstrate that NLET is not rationally related to a legitimate government purpose.
Other Coverage
Although there are brief stories about the decision in the LasVegas Sun and the Lake Tahoe News, the decision has not inflamed the imagination of the tax blogosphere, which is about as mature as the average sixteen year old boy, whenever there are stripper related tax cases The generally staid Tax Foundation took note opining that even though constitutional the tax might not really be good tax policy.
Regardless of whether these state-levied taxes are unconstitutional, the key consideration is if this tax effectively raises revenues in a way that minimizes economic harm, given its relatively narrow base. Tax structures with a broad base and low rates are fundamental to a robust tax policy. A narrow tax base, on the contrary, can stir speculation with respect to the use of a tax as a political instrument to disfavor a specific group, as in the case of strip clubs in Nevada. This is as true of narrow tax privileges (like Nevada’s recent mega-deal with Tesla) as of narrow excise taxes. Ultimately, the purpose of the tax code is not to enable policymakers to pick favorites or make social policy, but to raise revenue with minimal economic distortions. On that test, regardless of its constitutionality, Nevada’s “stripper tax,” like many excise taxes, doesn’t perform very well.
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