Ladies and gentlemen, next up to take the stage… on the questionable constitutionality of “pole taxes” is the State of Georgia. “Pole tax” is the coined term referring to an excise tax imposed only on adult entertainment businesses, such as gentlemen’s (i.e. strip) clubs. The constitutional issues presented by these state taxes have been put in the spotlight several times over the recent years. However, these efforts have consistently proven to be in vain. The Texas Supreme Court upheld the constitutionality of a pole tax in 2011, as well as the Nevada Supreme Court in 2014. In 2012, in New York, the highest court in the state upheld a law exempting sales tax for performing arts, like ballet, but not to exotic lap dance provided at a strip club.
Recently, Georgia enacted a law requiring “adult entertainment establishments,” and only “adult entertainment establishments,” to pay a tax, the proceeds of which are supposed to fund certain efforts related to combatting sexual exploitation of children. Although protecting children is a noble cause, taxing entities unrelated to the goal, based on the speech of those entities, is a violation of the First Amendment to the United States Constitution. On November 10, 2017, with the first pole tax payments coming due in April of 2018, the Georgia Chapter of the Association of Club Executives (ACE), a trade association of gentlemen’s clubs, took a stand and filed suit against the Georgia Attorney General and the Commissioner of the Georgia Department of Revenue (the defendants).
Originally, the objective of Senate Bill 8 (SB8), underlying the eventual law, was to expand civil and criminal penalties for sex crimes targeting children. SB8 along with Senate Resolution 7 (together referred to here as “the bill” for simplicity of discussion), called for formation of the Safe Harbor for Sexually Exploited Children Fund as well as an oversight commission. The proceeds of the Fund would pay for healthcare, housing, and other services for victims. Initially, the Fund and commission were to be paid for through federal funds, donations, and fines levied against persons convicted of sex crimes. However, during the Georgia state legislature’s consideration of the bill, an amendment was introduced to include a further source of funding in the form of an annual tax of 1% of gross revenue or $5,000 on all “adult entertainment establishments” in Georgia. This is the “pole tax.”
The bill was ratified by Georgia voters during the 2016 general election, making it a state law effective January 1, 2017. The statute, O.C.G.A. § 15-21-201(1), defines “adult entertainment establishment,” in pertinent part as follows:
(1) “Adult entertainment establishment” means any place of business or commercial establishment where alcoholic beverages of any kind are sold, possessed, or consumed wherein:
(A) The entertainment or activity therein consists of nude or substantially nude persons dancing with or without music or engaged in movements of a sexual nature or movements simulating sexual intercourse, oral copulation, sodomy, or masturbation;
(B) The patron directly or indirectly is charged a fee or required to make a purchase in order to view entertainment or activity which consists of persons exhibiting or modeling lingerie or similar undergarments; or
(C) The patron directly or indirectly is charged a fee to engage in personal contact by employees, devices, or equipment, or by personnel provided by the establishment.
Such term shall include, but shall not be limited to, bathhouses, lingerie modeling studios, and related or similar activities. …
ACE’s complaint (“the complaint”), filed in the Superior Court of Fulton County in the State of Georgia, included four counts as the basis of their request for relief, two of which we’ll examine here.
Count I of the complaint alleges that nude dancing is expressive conduct protected by the First Amendment. The First Amendment to the United States Constitution provides the guarantee of freedom of speech. Depending on the nature of a law, one of three tests of judicial review are applied when a court assesses the constitutionality of the law on First Amendment grounds.
Where it is found that speech is regulated based on its content, i.e. when a law is not “content-neutral,” “strict scrutiny” is typically the standard of judicial review applied. Strict scrutiny is, as its name implies, the most strict standard of judicial review. To withstand strict scrutiny, the burden is on the government to prove that it passed the law to further a “compelling governmental interest,” and that the law is “narrowly tailored” to achieve that interest.
Below strict scrutiny, there are two other tests that courts use in relation to First Amendment questions. “Intermediate scrutiny” is the mid-level standard of review. To pass intermediate scrutiny, the government has the burden to prove that it passed the law to serve an “important government objective,” and that the law is “substantially related” to achieving that objective. “Rational basis” review is the lowest and most forgiving standard. Under the rational basis test, the person challenging the law (not the government) has the burden to prove that either: (a) the government has “no legitimate interest” in the law or policy, or (2) there is “no reasonable, rational link” between that interest and the challenged law.
The complaint alleges that the pole tax is applied to gentlemen’s clubs because of the content of their speech – nude dancing, and that strict scrutiny, therefore, must be applied. Almost ubiquitously, when strict scrutiny is applied to a law, it is fatal. The test is so difficult to pass that most laws do not survive, and are therefore, invalidated.
It appears to me that the pole tax law does not pass intermediate scrutiny, much less strict scrutiny. I think combatting sexual exploitation of children is an important government objective, and even a compelling one. However, it seems that the law is not substantially related, much less narrowly tailored, to achieving that objective. From the complaint, it looks like ACE concurs.
ACE, in the complaint, refers to an amendment made to the bill, prior to passage of the law, that recites:
The General Assembly finds that a correlation exists between adult live entertainment establishments and the sexual exploitation of children. The General Assembly finds that adult live entertainment establishments present a point of access for children to come into contact with individuals seeking to exploit children. The General Assembly further finds that individuals seeking to exploit children utilize adult live entertainment establishments as a means of locating children for the purpose of sexual exploitation.
This assertion is ridiculous. As the complaint points out in relation to that statement, minors are not permitted to work at, or even enter into, adult nightclubs… So how are such venues supposed to function as a “point of entry” for children? It is possible that minors could be illegally trafficked to work as dancers in gentlemen’s clubs – Using this logic though, it would follow that in addition to the clubs, airports and hotels would also hold some culpability for the trafficking. After all, an airport enabled illegal transport of the minor, and a hotel enabled housing of the minor. However, to the contrary, hotels and airports are not subject to the tax.
The complaint further points to a statement about gentlemen’s clubs by the sponsor of the law’s underlying bill, Georgia State Senator Renee Unterman, reciting, “[t]hey’re in the business of selling sex,” and “so,” she concluded, they should have “some skin in the game.” This is faulty logic – Why is it that only gentlemen’s clubs should have skin in the game, and hotels, for example, should not when hotels make money renting rooms that include beds where people have sex?
The complaint alleges further deficiencies in the purported basis for the law. It is ACE’s position that the legislature failed to show a causal nexus between licensed adult entertainment clubs and the sexual exploitation of minors or human sex trafficking. I have not been able to independently review the studies or testimony based on which the law was passed. However, assuming that ACE’s statement is true, it supports the conclusion that the pole tax is simply a tax on entities based on the fact that some members of society don’t approve of the content of the speech of those entities. Accordingly, there are other, more reasonable ways, to pay for efforts to fight sexual exploitation of children than to tax entities that are not proven to be related to, much less causing of, the problem sought to be resolved.
It is important to note that any evidence shown in support of the law with regard to unlicensed clubs is inapplicable to the issue at hand. This is because such operations are already doing business illegally, i.e. “under the table,” and are therefore, probably not being subject to the pole tax anyway. It appears that ACE is questioning the validity of the law with respect to licensed clubs only.
Count II of the complaint alleges that the tax is unconstitutionally vague. According to the case of Jekyll Island-State Park Authority v. Jekyll Island Citizens Ass’n, 226 Ga. 152, 152 (1996), a civil statute is unconstitutionally vague in the State of Georgia if it does not provide fair notice to those at whom it is directed and its provisions do not enable them to determine the underlying “legislative intent.”
According to the complaint, the definition of “adult entertainment establishments” in the law, as reproduced above, is overly broad and impermissibly vague. I agree. For example, how many times must an establishment present “entertainment or activity therein [that] consists of nude or substantially nude persons dancing” to fall under the cloak of “adult entertainment establishment.” Is a nightclub that presents a cabaret show once a month, but live music on other nights, considered an “adult entertainment establishment?” What if a night club presents a cabaret once a quarter, or once a year? Does that make them subject to the tax? Your guess is as good as mine…
According to the complaint, the terms “substantially nude” and “display” are impermissibly vague. The term “substantially nude” is defined in the statute at O.C.G.A. 15-21-201(7) as “dressed in a manner so as to display any portion of the female breast below the top of the areola or displaying any portion of any person’s public hair, anus, cleft of buttocks, vulva, or genitals.” However, as the complaint pointed out in a footnote, in the case of Pel Asso, Inc. v. Joseph, 262 Ga. 904, 906-909 (1993), the Georgia Supreme Court held that a similar term, “partial nude dancing,” was unconstitutionally vague where “partial nude dancing” was defined as “dancing or appearing partially nude but at a minimum with the human male or female genitals, public area and buttocks and all of the nipples of the breasts of a female being at least shielded and covered by a fully opaque covering.” So, the law here should similarly be considered unconstitutionally vague as well.
The complaint includes two further counts, but I will not go into the details here as they are beyond the scope of the subject of this article. For now, we’ll have to wait and see how the case proceeds. I’ll provide an update when the defendants file an “answer” to the complaint. However, as the ladies in the clubs dance around the pole, the defendants will probably dance around the issue….