Hustler Strip Club Currency Taxable: New York Court

For over 50 years, Bloomberg Tax’s renowned flagship daily news service, Daily Tax Report® has helped leading practitioners and policymakers stay on the cutting edge of taxation and...

By John Herzfeld

Nov. 7 — Larry Flynt’s Hustler Club owes sales taxes on the $24 million in “Beaver Bucks” currency used by patrons at the men’s entertainment club, a state appellate court ruled ( CMSG Rest. Group, LLC v. State , N.Y. App. Div., No. 2016 NY Slip Op 07280, 11/3/16 ).

The New York Taxation and Finance Department properly imposed sales tax on the club’s in-house currency for tipping topless dancers, floor hosts and bartenders as well as gaining entry into private rooms for lap dances, Justice Peter Tom wrote Nov. 3 for a unanimous five-judge panel of the state Supreme Court Appellate Division, First Department.

The panel rejected the club owners’ argument that they had been singled out for the tax as a way of penalizing the expressive conduct of nude exotic dancing, finding the tax akin to amusement tax charged for admission to sporting events, variety shows, carnivals and the like.

The decision backed a state tax liability bill of more than $2.1 million, plus interest but no penalty, for a period from June 2006 through November 2008.

An attorney for the club owners, Henry L. Saurborn of Kaiser Saurborn & Mair PC in New York, told Bloomberg BNA Nov. 7 that they intend to appeal the ruling.

Free Speech Challenge

The case challenged the state’s amusement and cabaret sales taxes as infringing on the club’s right to free speech by imposing a differential tax based on disfavored content.

However, a state Division of Tax Appeals administrative law judge backed the department, calling the club “a place of amusement, plain and simple,” where “performers remove their clothing and create an aura of sexual fantasy.”

Any “movements, whether dance moves or other choreography, that comprise an entertainer’s routine and that appeal to the patron, are ancillary to the ultimate service sold, which is sexual fantasy,” the ALJ said.

In January 2015, the state Supreme Court, New York County, also rejected the club’s constitutional arguments on the merits, in addition to barring the complaint on procedural grounds.

Exclusive Remedy Sidestepped

In rejecting the club’s appeal, the appellate panel turned aside “contentions that the laws are unconstitutionally vague or deny them due process.” It further found that the club hadn’t exhausted exclusive administrative remedies on its argument that the performances were exempt from sales taxes.

The appellate opinion drew on a 2012 decision by the Court of Appeals, the state’s highest court, upholding sales taxes in an exotic dance “juice bar” case with similar facts ( 677 New Loudon Corp. v. New York, N.Y. Tax App. Trib., No. 157, 10/23/12 ).

In contrast to that case, which involved admission charges and private performance fees, the tax in the Hustler Club case was imposed only on the sale of the multi-use currency, not the dancing itself, the judge said.

Justices David B. Saxe, Rosalyn H. Richter, Judith J. Gische and Troy K. Webber concurred in the Nov. 3 opinion.

To contact the reporter on this story: John Herzfeld in New York at

To contact the editor responsible for this story: Ryan C. Tuck at

For More Information

Text of the decision is at

Copyright © 2016 The Bureau of National Affairs, Inc. All Rights Reserved.

Request Daily Tax Report