State bikini bars fight 7-figure ‘pole tax’ bills
Businesses say they aren’t strip clubs and law is being overzealously applied
AUSTIN — Baring a little too much skin can be costly in Texas.
Dozens of “bikini bars” from Houston to San Antonio are suing the state after the Texas comptroller accused them of skirtareola. ing the so-called pole tax on nude entertainment and slapped them with seven-figure fees, according to the lawsuits.
The fight focuses on the state definition of nude, which includes any part of the buttocks or a woman’s breast below the top of the And in federal court, the clubs are questioning why they are taxed for bikini-clad performers but concert halls or sports venues that host cheerleaders and musicians wearing thongs or cleavage-baring tops are not.
“If they aren’t doing it to them, they shouldn’t be able to do it to a topless club or a bikini bar,” said attorney Casey Wallace, who is representing the Texas Entertainment Association, which brought the federal lawsuit in 2017.
The comptroller’s office said it follows the law and determines which clubs should be taxed by looking at their social media posts and marketing. The office also sends inspectors inside to see what
“If they are called topless clubs, the claim they are not wears a little thin.”
Ray Langenberg, special counsel for tax litigation for the Texas Comptroller of Public Accounts
dancers are wearing.
“The agency is just trying to apply this in a common-sense way,” said Ray Langenberg, special counsel for tax litigation for the Texas Comptroller of Public Accounts. “If they are called topless clubs, the claim they are not wears a little thin.”
The fees are being contested in a state appeals process by 34 clubs across Texas, including a dozen in the Houston area. At least 27 more clubs have filed lawsuits, including 14 clubs based in Houston, according to the comptroller’s office.
These are the latest in a string of court battles over the 2007 pole tax that lawmakers levied on strip clubs to fund programs that help sexual assault victims. It applies to sexually oriented businesses with nude dancing and alcohol consumption.
The bikini bars are contesting the bills — some as a high as $1.2 million — calling them overinflated. They argue the state’s $5per-patron fee doesn’t apply to their bars because dancers aren’t topless or fully undressed, according to several of the lawsuits filed in Travis County this year.
“It’s not a question about maximizing revenue to the state of Texas. It’s about shutting these places down, in our opinion,” said Houston attorney Ron Rainey, who with partner Chris Tritico is representing the Houston club Glamour Girls against the state.
The pole tax was controversial from the start. Though clubs got the law overturned at first, higher courts later upheld it in 2014.
Collections, meanwhile, have been up and down. Once expected to generate upward of $30 million a year, revenue from the tax peaked at $22 million in 2016 after a lull in the court fights, according to data from the comptroller’s office. This year, with less than two months until the close of the fiscal year, the tax has raked in just over $15 million.
Some clubs that didn’t want to pay the fee began requiring dancers to wear bikinis.
That, however, didn’t stop the comptroller’s office from trying to collect a decade’s worth of back taxes over the past three years, according to several of the lawsuits. When tallied up with penalties and interest, the costs totaled between $700,000 and $1.2 million.
The clubs also challenge the state’s math. To estimate the number of patrons who walked through a club’s door, at $5 a piece, the comptroller’s office looked at alcohol sales, according to the lawsuits. It’s pure guesswork, attorneys said, with estimates figuring each customer downed five drinks.
One club in Houston was assessed for more than $780,000 over a three-month period, meaning the state assumed 156,000 patrons passed through, said Wallace, who declined to name the establishment. That equates to about 1,700 customers a day.
“You have got to laugh,” he said. “There’s just no way.”
Many of the businesses deal in cash, and the comptroller expects thorough records, the office said.
“Per statute, a Sexually Oriented Business is required to keep daily records that reflect the number of customers admitted to the business, along with statements, books, or accounts necessary to determine the amount of fee that the business is liable to pay,” spokesman Kevin Lyons said in a statement. “If the taxpayer fails to keep adequate records, we may estimate the liability based on any available information.”
Steps that clubs say they have taken to guard against any chance of a wardrobe malfunction are even in dispute. At one cabaret, performers must cover up with latex underneath their tops, according to the lawsuit filed by Houston-based A.K.T. Inc., which runs Secret Cabaret.
Latex, paint, wax and foam aren’t considered clothing by the comptroller’s office, though that’s being contested by the Texas Entertainment Association in its ongoing federal lawsuit.
The attorney general’s office didn’t return a request for comment but is fighting the cases in court.
It’s not clear how the arguments will land; none of the lawsuits has reached a final verdict, several attorneys said. In the meantime, some clubs have temporarily closed their doors and are at risk of going out of business, said Clyde Burleson, an attorney representing four Houston-based clubs.
“That what’s will happen if (the state) wins these lawsuits,” he said. “Many of the businesses don’t have the ability to pay these fees.”
amorris@express-news.net