Shrouded in taboo and often unmentionable in polite company, adult entertainment is a form of amusement that has been around for centuries. If one decided to take a road trip across the entire country, a person could actually frequent what the Huffington Post describes as some of “the best” strip clubs in each of the 50 states. Plenty of options are available since there are about 4,000 strip clubs to choose from, according to Statistic Brain. Adult entertainment establishments, particularly strip clubs, generate considerable revenue (over $3 billion dollars in the U.S. annually and $75 billion worldwide). With these kinds of proceeds, some states have taken steps to get in on the action by imposing a sales tax on fees for these “sinful” services.
On Nov. 8, a tax initiative targeting strip clubs appeared on Georgia’s ballot, and voters approved the proposed constitutional amendment. Amendment 2 permits the state to impose assessments on “adult entertainment establishments”; these revenues would fund social services for sexually exploited children. The initiative does not automatically establish a tax, but rather only allows the state to impose one. The manner in which the tax would be applied is also still unclear, but other states such as Utah, Illinois, and Texas will likely to set the tone. In 2013, for example, Illinois enacted legislation which explicitly imposed a tax, often referred to as the “pole tax,” on the revenue collected by adult entertainment facilities offering nude dancing and stripping performances for a fee. There are two options for calculating the surcharge under the Illinois statute: either the fee is $3 per admission, or it is calculated based on the amount of gross receipts. Texas, on the other hand, requires these establishments to collect a $5 fee per customer. Utah takes another approach imposing a 10 percent tax on amounts collected by strip clubs for admissions, any service and sales of tangible personal property.
Although there was initially some skepticism in 2014 about whether the Illinois pole tax would live up to its expectations, the State Journal-Register reported in 2016 that the Department of Revenue collected roughly $0.5 million in pole-tax revenue. But other states have managed to find ways to tax adult entertainment services by simply looking to their amusement tax provisions. As reported by Bloomberg BNA’s John Herzfeld, New York’s Division of Taxation and Finance has done exactly that. On Nov. 3, 2016, the Division won an appeal entitling the state to more than $2 million in amusement tax revenue from Larry Flint’s Hustler Club. The tax was assessed against revenues collected by the club for the sale of “beaver bucks,” a form of “in house currency” that customers used to indulge in lap dances, pay for private rooms and tip dancers and servers. The club argued that its performances were tax-exempt live dramatic, choreographed dances. The administrative law judge who handed down the decision concluded that the club offered “sexual fantasy” to its patrons and sales of such services are taxable under the state’s amusement tax.
The Arizona Department of Revenue had a similar victory on Oct. 6, 2016 when the state’s Court of Appeals held that Le’ Girls Cabaret was liable for payment of a tax deficiency exceeding $10,000 resulting from revenue generated from fees collected from the sale of “shows,” including nude performances and various ancillary fees. Under the broad scope of Arizona’s amusement tax provisions, nude performances and all gross income that is either directly or indirectly derived from these shows is taxable.
Considering the fact that there are roughly 4,000 strip clubs scattered about the U.S., it would seem that there is some truth behind the age-old saying that “sex sells.” Based on these recent rulings, taxing the sale of adult entertainment services under amusement tax provisions may be an effective way to generate a steady stream of tax revenue.
Continue the discussion on Bloomberg BNA’s State Tax Group on LinkedIn: Do you think adult entertainment establishments should be paying taxes for providing “sexual fantasy”?
Get a free trial to Premier State Tax Library , a comprehensive research service that delivers deep, unique analysis and time-saving practice tools to help practitioners make well-informed decisions.
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to email@example.com.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to firstname.lastname@example.org.
Put me on standing order
Notify me when new releases are available (no standing order will be created)