Extras on Excise: Fashion Matters for Paying the Texas ‘Pole Tax’


In the words of Mark Twain, “Clothes make the man. Naked people have little or no influence on society.” Nudity, however, does have tax implications in certain states, and determining what constitutes nudity can mean tax bills for live adult entertainment and sexually oriented businesses.

In Texas, the “pole tax” or sexually oriented business fee (SOBF) is imposed on businesses providing live nude performances and allowing alcoholic beverage consumption on the premises. The rate is $5 for each entry into the venue. The tax has been controversial since its debut on Jan. 1, 2008, leading to a number of constitutional challenges. Aside from these claims, there is also the question of what counts as being nude for tax purposes.

Over the past few years, there have been a number of Texas administrative decisions pertaining to whether entertainers were nude enough for the SOBF to apply. Statutory requirements have always provided rules on what constitutes nudity (i.e., not having on opaque clothing that covers certain parts of the body), but effective Jan. 29, 2017, 34 Tex. Admin. Code § 3.722(a)(1) was amended to state that some substances, such as latex and paint “applied to the body in a liquid or semi-liquid state,” are not clothing. This latex rule has already been having an impact on ongoing tax disputes.

For example, the regulatory change guided the ruling in Texas Comptroller’s Decision, Hearing No. 112,984 (June 27, 2017). The dancers in that case wore opaque latex tops applied in a liquid form, in addition to shorts. The petitioner asserted that the latex tops counted as clothes, meaning the dancers were not dancing in the nude and the SOBF did not apply. The department relied on the new definition of clothing to argue that the establishment offered nude dancing and was thus a sexually oriented business; the administrative law judge agreed.

The latex rule will apply retroactively, as the preamble to the amended regulation specifies that the rule change applies to “all pending and future cases.” That was the case in Texas Comptroller’s Decision, Hearing No. 113,075 (May 10, 2017), where the rule applied because the dancers wore opaque latex underneath their bikini tops, which dancers were allowed to remove.

However, the use of latex clothing is not the only issue being challenged in assessments involving the SOBF. In Texas Comptroller’s Decision, Hearing No. 112,494 (June 27, 2017), department officials determined an establishment to be a sexually oriented business when they observed one dancer wearing a bikini bottom that did not meet the statutory threshold for being clothed during an inspection.

Texas isn’t the only jurisdiction that taxes provocative live entertainment; Utah, Georgia, and Illinois have similar assessments.

In Utah, a sexually explicit business and escort service tax is imposed on owners and operators of sexually explicit businesses and escort services at 10 percent of admission fees, user fees, retail sales of in-state tangible personal property, and sales of food, food ingredients, beverages, and services. Sexually explicit businesses are those that have nude or partially nude individuals performing any service on-premises.

Georgia’s adult entertainment tax is a recent addition; voters approved the assessment via constitutional amendment on Nov. 8, 2016. Effective Jan. 1, 2017, the tax is imposed on adult entertainment establishments at the greater of 1 percent of the previous calendar year’s gross revenues and $5,000. As for the clothing threshold, either “nude or substantially nude persons” count. The initial return is due April 30, 2018. The Georgia Department of Revenue released proposed regulations for the assessment on Sept. 7, 2017; comments are due by Oct. 16, 2017.

Illinois’s live adult entertainment facility surcharge also includes “nude or partially denuded” employees in its definition of a live entertainment venue. There are two rate calculation methods—operators can pay either $3 per customer admitted or use a sliding scale based on the amount of gross receipts subject to sales tax during the previous calendar year to determine the surcharge.

If anything, these administrative decisions and laws prove that tax law is never boring.

Continue the discussion on Bloomberg BNA’s State Tax Group on LinkedIn: What do you think is the proper base and rate for live entertainment fees?

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