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A bid by Larry Flynt’s Hustler Club to nix a $2.1 million New York tax assessment on $24 million in sales of the club’s “Beaver Bucks” doesn’t belong before the U.S. Supreme Court, the state argued in a brief opposing the club’s petition for review.
“Nothing about this case merits this Court’s review,” New York Attorney General Eric T. Schneiderman (D) wrote in the state’s Sept. 27 opposition brief ( CMSG Rest. Grp., LLC v. New York , U.S., No. 17-147, brief in opposition 9/27/17 ).
The petition for review didn’t identify any conflicts between the lower court decision and any state or federal appeals courts, and the lower court’s decision “is a straightforward application” of Supreme Court precedent, he said.
A mid-level New York appellate court in November rejected a challenge by CMSG Restaurant Group LLC to a state Taxation and Finance Department sales tax bill on Beaver Bucks, the New York City club’s in-house currency for tipping topless dancers and gaining admission to private rooms for lap dances.
The club sought U.S. Supreme Court review in July after the state’s highest court, the Court of Appeals, in March dismissed its appeal for lack of a substantial constitutional question.
The state collects a 4 percent sales tax on most kinds of public amusement and entertainment, in the form of an amusement tax or a cabaret tax. Certain dramatic and musical arts performances get an exemption from the amusement tax as a way of subsidizing the arts, and the cabaret tax includes an exemption for places where selling food, refreshments, or merchandise is “merely incidental” to live dramatic or musical arts performances.
But the state’s highest court made clear in a 2012 decision that nude dancing shows don’t qualify for the amusement tax exemption, the attorney general said.
An administrative law judge for the state tax agency had rejected the Hustler club’s challenge to the sales tax assessment, finding the exemption didn’t apply “because the service sold was sexual fantasy, not dance.”
The trial-level state Supreme Court upheld that decision, finding the club hadn’t exhausted its administrative appeals before the tax agency. The mid-level state Appellate Division affirmed the constitutionality of the amusement and cabaret taxes and further ruled that the state is allowed to make content-based distinctions when it chooses to subsidize the arts.
A parallel challenge by the club through the tax agency’s appeals tribunal, based on a full administrative record, remains pending in a state Appellate Division court. The petition before the U.S. Supreme Court, which didn’t look at the evidence in the administrative record, is “a poor vehicle” to address the club’s First Amendment challenges, Schneiderman argued.
The separate state-court review of the administrative proceeding is looking at issues other than whether the dances at the club are musical or dramatic arts performances, the attorney general said. It thus may result in a decision showing that the club’s First Amendment claims “are not squarely presented on the facts of their case,” he said.
The club, in its July petition for review, argued the state amusement and cabaret tax laws violate its free-expression and due-process rights under the First and Fourteenth Amendments of the U.S. Constitution by allowing state tax officials to make content-based distinctions between “ill-defined ‘live dramatic, choreographed, or musical performances’”—with “no standards whatsoever” to guide them.
It asked the high court to grant review to prevent practices “from gaining ground” that allow the state to “selectively award tax exemptions based on the tax collector’s judgment regarding whether speech is sufficiently ‘cultural and artistic.’”
The state appellate courts, the club argued, had “turned a blind eye to the arbitrary nature of how this content-based discriminatory exception can be administered.”
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