Texas to Collect Unconstitutional Admittance Tax

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Texas Entertainment Association Warns Businesses May Close; Other Legal and Politically Unpopular Businesses at Risk for Rights Violations

Defendants are permanently enjoined from assessing or collecting the tax imposed by sections 47.051-.056.

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The Texas Entertainment Association (TEA) announced this morning that adult cabarets across the state received notification last week from the Texas Comptroller that controversial, industry-wide $5 admittance taxes are due today. The state's surprise notification comes in the wake of the 53rd District Court's March 28 ruling that the taxes represent an invalid, unconstitutional violation of First Amendment rights.

In its judgment, an Austin judge specifically ordered that the, "Defendants are permanently enjoined from assessing or collecting the tax imposed by sections 47.051-.056."(1) The Texas Attorney General's Office filed an appeal on April 7, and in letters issued to adult cabaret businesses across the state, the Comptroller's Office states that its appeal suspends both the Court's judgment and injunction. (2)

Angelina Spencer, executive director of the Association of Club Executives, a nationwide organization of which the Texas Entertainment Association is a chapter, issued a statement on behalf of all the club owners in the TEA warning that businesses may be forced to close and that workers may lose their jobs due to this violation of the club's First Amendment rights. In addition, she noted that if the state can set aside the U.S. Constitution by filing an appeal, other businesses may soon find themselves in the same situation:

"The Texas Attorney General and Comptroller have made a poor decision, attempting to collect a tax from Texas businesses that has already been determined in court to be unconstitutional. Now, based solely on the fact that the state has filed an appeal, the Comptroller's Office has notified these businesses that the illegal tax must be paid today," she said.

"Cabaret owners may be forced to shut down. In these economically tough times, hard-working taxpayers employed by these legal businesses deserve better than being forced out of gainful employment by elected officials seeking to impose a patently unconstitutional law on an unpopular industry for the purposes of political gain.

"This is a terrible precedent for all sides and should be of concern to all business owners. The bottom line is that this is a narrowly targeted and unconstitutional tax on legal but politically unpopular businesses. The law affects approximately 165 cabarets in Texas. That means it could happen to anyone when political winds shift. The definition of what a 'deserving cause' is, and who is a good target for a narrow tax is, may change also. Our only protection is the U.S. Constitution and our courts.

"TEA attorneys testified before the legislative committee that the tax was unconstitutional. Now the court has confirmed it. All our elected leaders are sworn to uphold the Constitution. The right thing to do is obey the court's injunction until the appeal is decided and find another way to fund these worthy, but unrelated causes."

Additional information on this issue can be found at: TEA Press Room.

About the Texas Entertainment Association

The Texas Entertainment Association, Inc., is an industry trade association of Texas cabaret owners who have joined together to set and maintain high standards for clubs and their entertainers, and compliance with the regulations governing adult cabaret businesses. The TEA is a chapter of the Association of Club Executives, the trade association of America's adult nightclubs. The association's mission is to provide and share information concerning the political and legal status of the adult nightclub industry and to further provide a platform for the strategic planning of initiatives to combat negative challenges. More information can be found at: http://www.acenational.org.

Footnotes:

(1) Cause No. D-1-GN-07-004179 Texas Entertainment Association, Inc. and Karpod, Inc. vs. Susan Combs, Comptroller of Public Accounts of the State of Texas and Greg Abbott, Attorney General of the State of Texas. March 28, 2008. Filed in the District Court of Travis County, Texas.

(2) Copies of this letter can be found at: TEA Press Room.

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Craig McDaniel
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