BILL ANALYSIS Ó
AB 2441
Page A
Date of Hearing: April 16, 2012
ASSEMBLY COMMITTEE ON REVENUE AND TAXATION
Henry T. Perea, Chair
AB 2441 (Williams) - As Amended: April 9, 2012
2/3 vote. Fiscal committee.
SUBJECT : Sexual assault treatment and prevention: sexually
oriented business tax
SUMMARY : Imposes, on or after January 1, 2013, a tax upon the
privilege of operating a "sexually oriented business" at the
rate of $10 per customer entry. Specifically, this bill :
1)Defines a "sexually oriented business" as a nightclub, bar,
restaurant, or similar commercial enterprise that does both of
the following:
a) Provides for an audience of two or more individuals live
"nude" entertainment or live "nude" performances; and,
b) Authorizes on-premises consumption of alcoholic
beverages, regardless of whether the consumption of
alcoholic beverages is under a license or permit issued
under the Alcoholic Beverage Control Act.
2)Defines "nude" to mean clothed in a manner that leaves
uncovered or visible through less than fully opaque clothing,
any portion of the genitals or buttocks or, in the case of a
female, any portion of the breasts below the top of the
areola.
3)Requires sexually oriented businesses to record daily the
number of customers admitted.
4)Prohibits sexually oriented businesses from requiring the tax
to be reimbursed by employees or independent contractors.
Businesses may, however, require the tax to be reimbursed by
customers.
5)Requires sexually oriented businesses to remit the tax to the
State Board of Equalization (BOE) each quarter.
6)Requires the BOE to administer and collect the tax pursuant to
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the Fee Collection Procedures Law.
7)Requires the BOE to transmit all payments, less refunds and
the BOE's administrative costs, to the Treasurer for deposit
in a newly created Sexual Assault Treatment and Prevention
Fund (Fund).
8)Provides that moneys in the Fund shall, upon legislative
appropriation, be used by the California Emergency Management
Agency (Agency) to award grants for specified purposes related
to the prevention and treatment of sexual assault.
9)Provides that Fund moneys shall also be used by the Agency to
create a specified report, which shall be submitted on July 1,
2015, and biennially thereafter.
EXISTING LAW :
1)Imposes a sales or use tax on the sale or use of tangible
personal property (TPP) in this state, absent a specific
exemption. Currently, the Sales and Use Tax (SUT) Law
contains no special provisions governing the sale or use of
sexually explicit TPP. The SUT Law applies to such items as
it does to items of TPP generally.
2)Defines "harmful matter", under Penal Code Section 313, as
"matter, taken as a whole, which to the average person,
applying contemporary statewide standards, appeals to the
prurient interest, and is matter which, taken as a whole,
depicts or describes in a patently offensive way sexual
conduct and which, taken as a whole, lacks serious literary,
artistic, political, or scientific value for minors."
FISCAL EFFECT : The BOE provides the following revenue summary
in its staff analysis of this bill:
The revenue estimate for this bill is subject to
considerable uncertainty. Our research indicates that
there is a paucity of published information that would
describe and provide a background about the SOB industry in
California. Simply stated, this bill would impose a
per-person admissions tax on specified SOBs, and we are not
aware of any attendance figures that could be used to
develop a reliable revenue estimate.
Approximately 180 sexually oriented businesses currently
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operate in California, roughly 80 of which serve alcohol
and thus would be required to collect the tax under the
bill's provisions. To establish an order of magnitude, if
we conservatively assume that the average daily attendance
statewide is 120 persons, this measure would generate $35
million in revenue (365 days multiplied by 80 businesses
multiplied by 120 persons per day multiplied by the $10 tax
rate). However, actual revenues could be significantly
different (higher or lower), to the extent that actual
attendance differs from the daily average we have assumed.
Additionally, standard microeconomic theory suggests that
attendance would decline somewhat in response to the
imposition of the tax; however, the extent of the decline
is unknown.
COMMENTS :
1)The author has provided the following statement in support of
this bill:
Sexual assault continues to be a serious problem in our
State and it requires financial resources to combat it.
According to the National Intimate Partner and Sexual
Violence Survey (2010) conducted by the Centers for Disease
Control and Prevention, 2 million people in the state of
California identify themselves as survivors of rape, and
there are over 8,600,000 survivors of sexual violence other
than rape currently living in California. It's clear there
are far more victims of sexual assault than we can
currently help with existing funding.
AB 2441 establishes a new funding stream to support
services for these victims by requiring a charge equal to
$10 per customer per visit patronizing those strip clubs
serving alcohol. However, the bill provides the strip club
the discretion to determine the manner in which they derive
the money required to pay the tax; but for the exception
that the tax may not be passed on to the entertainer.
Texas and Utah both passed similar legislation. When
appealed after passage in Texas, the Texas Supreme Court
found the law to be constitutional and the case was
recently declined for hearing by the U.S. Supreme Court,
paving the way for other states to impose a similar tax to
intervene in and prevent sexual violence. For example, at
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least 5 other states are currently considering the same
idea, including Illinois and Minnesota who have recently
introduced similar legislation.
This proposal allows California to reprioritize funding for
sexual violence intervention and prevention, fund the
payment of sexual assault forensic exams and support human
trafficking victims.
2)Proponents state:
The California State Budget General Fund commits only
$45,000 annually to sexual violence programs. In the past
year, about 30,000 Californians accessed crisis
intervention services, which means the state only allotted
about $1.50 for each person served. While 30,000 is a
sizable number of Californians, it is a small percentage of
the real number of survivors in the state. A recent
national survey by the Centers for Disease Control and
Prevention shows that there are more than 2 million people
in İCalifornia] who are survivors of rape (not including
any other form of sexual violence). Due to the small
amount of funding provided by the state, rape crisis
centers cannot meet the needs of all of the survivors in
the state.
3)Opponents state:
While no reasonable person would deny the need to fund
programs which improve services to help victims of crime
heal and restore their lives, the approach (and implied
link between violence and adult entertainment) within AB
2441 is on its face fatally flawed and traverses a
İslippery] slope of duplicitous public policy
consideration. There is no evidence to support even the
suggestion that adult entertainment causes crimes against
women merely due to the presence of nudity, as AB 2441
suggests. In fact, to the contrary, numerous psychological
treatments of sexual offenders involves increased exposure
to nudity (primarily films), to desensitize the offender to
sexual issues.
4)The BOE has provided the following comments in its staff
analysis of this bill:
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a) What is a sexually oriented business? : "This bill
defines the category of business which would be subject to
the tax to be a nightclub, bar, restaurant, or similar
commercial enterprise that provides for an audience of two
or more individuals live nude entertainment or live nude
performances and authorizes on-premises consumption of
alcoholic beverages, regardless of whether the consumption
of such beverages is under a license issued under the
Alcoholic Beverage Control Act.
"It is not entirely clear which businesses would be subject
to the tax. Specifically, what does "authorizes
on-premises consumption of alcoholic beverages" mean?
Would businesses commonly known as "juice bars" be subject
to the tax? For example, clubs providing full nude
entertainment are prohibited from licensing under the
Alcoholic Beverage Control İAct] pursuant to Rule 143.2,
which provides, in part, that "live entertainment is
permitted on any licensed premises, except that no license
shall permit any person to perform acts of?displaying the
pubic hair, anus, vulva or genitals." Does the second
criterion address "juice bars" (clubs that provide nude
entertainment and sell juices and non-alcoholic sodas
instead of alcoholic beverages), which may not hold
Alcoholic Beverage Control licenses or sell alcoholic
beverages, if they permit customers to consume alcoholic
beverages on their premises?
"It is also not clear if a business occasionally hosting an
event that meets the definition of a SOB would be subject
to the proposed tax, such as a club hosting a wet t-shirt
contest."
b) Who is the taxpayer? : "The bill imposes the proposed
tax upon "the privilege of operating a sexually oriented
business" rather than a person. Although the bill makes
reference that the tax is intended to be imposed upon the
SOB, the bill should be amended to clarify that intent.
The following language is suggested:
34003. On or after January 1, 2013, a tax is hereby
imposed upon the privilege of operating a sexually
oriented business at the rate of ten dollars ($10) per
entry to the business by a customer per visit."
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c) Delayed operative date necessary : "To effectively
implement this bill, it would be necessary for the BOE to
notify and register SOBs, develop computer programs, hire
and train key staff, create necessary forms and schedules,
and answer taxpayer inquiries. These functions should take
place before the tax becomes operative.
BOE staff estimates that it would take a minimum of six
months to implement the new program proposed by this bill.
In order to provide the BOE with the necessary 6-month lead
time, it is suggested that the bill be amended to provide
for a delayed operative date to the first day of the first
calendar quarter commencing more than six months after the
bill is enacted. This would provide the BOE with
sufficient lead time to successfully implement the bill and
would be consistent with the quarterly reporting basis
proposed by this measure."
d) The BOE analysis also proposes a number of additional
suggested amendments to promote the effective and efficient
administration of the new tax.
5)Committee Staff Comments:
a) Adult entertainment taxes : In recent years, a number of
state and local governments have either considered or
enacted taxes on adult entertainment. These taxes fall
into two general categories. The first category is
comprised of excise taxes on adult entertainment
businesses. For example, a 2006 Kansas proposal would have
levied a 10% excise tax on businesses and individuals
providing "sexually explicit products and services." The
second category of tax requires adult entertainment
employees to pay an industry-specific license fee. This
type of tax was enacted in Georgia, where a county
ordinance requires those working in an adult entertainment
business to pay a special license fee.
b) Does the First Amendment protect adult entertainment? :
Legal precedent appears to draw a distinction between
"obscenity", which receives no First Amendment
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protection<1>, and more "legitimate" forms of adult
entertainment, which are protected. For example, in City
of Erie, et al. v. Pap's A.M. (2000) 529 U.S. 277, 289, the
U.S. Supreme Court noted that nude dancing is expressive
conduct, although the Court found that it fell "within the
outer ambit of the First Amendment's protection."
c) Can differential taxation implicate First Amendment
protections? : Yes. Supreme Court precedent clearly
establishes that a discriminatory tax on the press burdens
First Amendment rights. Arkansas Writers' Project, Inc. v.
Ragland, Commissioner of Revenue of Arkansas (1987) 481
U.S. 221, 227. The Court has stated that, "selective
taxation of the press - either singling out the press as a
whole or targeting individual members of the press - poses
a particular danger of abuse by the State." Id . at 228.
Both types of discrimination can be established even
without evidence of an improper motive to censor. Id .
In Arkansas Writers' Project, Inc. , the Supreme Court was
asked to decide whether a state sales tax scheme that taxed
general interest magazines, but exempted newspapers and
religious, professional, trade, and sports journals,
violated the First Amendment. Id . at 223. The Court noted
that, "İi]n order to justify such differential taxation,
the State must show that its regulation is necessary to
serve a compelling state interest and is narrowly drawn to
achieve that end." Id . at 231. In other words,
differential taxation schemes implicating First Amendment
rights must generally pass the "strict scrutiny" test to be
found constitutional.
The Arkansas Commissioner of Revenue asserted several state
interests to justify Arkansas' sales tax scheme. Id .
-------------------------
<1> Under the Supreme Court's 1973 decision in Miller v.
California (1973) 413 U.S. 15, jurors must consider several
factors in determining whether matter is obscene. These include
whether the: (1) average person, applying contemporary community
standards, would find that the work, taken together, applies to
prurient interests; (2) work depicts or describes, in a patently
offensive way, sexual conduct specifically defined by state law;
and, (3) work, taken together, lacks serious literary, artistic,
political or scientific value.
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First and foremost, the Commissioner argued that states
have a general interest in raising revenue through
taxation. Id . The Court noted that, while it has
recognized this interest as an important one, "it does not
explain selective imposition of the sales tax on some
magazines and not others, based solely on their content."
Id .
The Court found that, "the basis on which Arkansas
differentiates between magazines is particularly repugnant
to First Amendment principles: a magazine's tax status
depends entirely on its content." Id . at 229. The Court
also noted that, to determine if a magazine was subject to
sales tax, state officials would have to examine the
content of the message conveyed. Id . at 230. The Court
held that, "İs]uch official scrutiny of the content of
publications as the basis for imposing a tax is entirely
incompatible with the First Amendment's guarantee of
freedom of the press." Id . citing Regan v. Time, Inc.
(1984) 468 U.S. 641, 648. As such, the Court struck down
Arkansas' sales tax scheme as unconstitutional.
d) Would an adult entertainment tax be subject to strict
scrutiny? : Not necessarily. In City of Eire, et al. v.
Pap's A.M. , supra , the Supreme Court applied intermediate
scrutiny to uphold a municipal ordinance banning public
nudity. The Court held that Eire's ordinance was a
content-neutral regulation aimed at addressing the harmful
secondary effects of public nudity, and unrelated to the
suppression of expression. Specifically, the Court found
that, "the ordinance prohibiting public nudity is aimed at
combating crime and other negative secondary effects caused
by the presence of adult entertainment establishments . . .
and not at suppressing the erotic message conveyed by this
type of nude dancing." Id . at 291. Moreover, even if the
regulation has an incidental effect on some speakers or
messages but not others, the regulation is content-neutral
if it can be justified without reference to the content of
the expression. Id . at 294.
e) What level of judicial scrutiny would apply to a
regulation or tax targeting the "secondary effects" of
adult entertainment ?: Likely, intermediate scrutiny. Any
law targeting the negative secondary effects of adult
entertainment will likely be subject to the intermediate
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level of review set forth in United States v. O'Brien
(1968) 391 U.S. 367. In O'Brien , the Supreme Court applied
a four-factor test in evaluating a restriction on symbolic
speech. The first factor of the O'Brien test is whether
the government regulation is within the constitutional
power of the government to enact. The second factor is
whether the regulation furthers an important or substantial
government interest. Under the third factor, the
government interest must be unrelated to the suppression of
free expression. The fourth and final O'Brien factor is
whether the restriction is no greater than necessary to the
furtherance of the government interest.
In City of Erie , the Court found that a municipal ban on
public nudity satisfied each of these four factors. First,
the Court noted that the city's efforts to protect public
health and safety were clearly within the city's police
powers. Second, the Court noted that, "İt]he asserted
interests of regulating conduct through a public nudity ban
and of combating the harmful secondary effects associated
with nude dancing are undeniably important." ( City of
Erie , supra , at 296.) Moreover, the Court stated that a
city need not conduct new studies or produce new evidence
independent of that already generated by other cities to
demonstrate that the targeted secondary effects pose a
threat. Third, the Court found that the City of Erie's
regulation was content-neutral. Finally, the Court noted
that the ordinance regulated conduct, and any incidental
impact on the expressive element of nude dancing was de
minimis.
Using similar reasoning, in 2004, the Georgia Supreme Court
unanimously upheld the constitutionality of a county
ordinance requiring any person - including dancers,
waitresses, bartenders, dishwashers and janitors - working
at an adult entertainment establishment serving alcohol to
obtain a special permit from the local tax commissioner.
The state Supreme Court held that the ordinance was
content-neutral and "aimed at combating undesirable
secondary effects associated with adult entertainment
establishments." I.D.K., Inc. v. Ferdinand (2004) 277 Ga.
548, 552.
f) More recent state litigation : In Combs v. Texas
Entertainment Association, Inc. (2011) 347 S.W.3d 277, the
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Texas Supreme Court reviewed a state statute requiring any
business that offers live nude entertainment and allows the
consumption of alcohol on its premises to remit a $5 fee
for each customer admitted. Specifically, the court was
asked to decide whether the statute violated the right to
freedom of speech guaranteed by the First Amendment. Id .
at 278. The court held that it did not. Id . The court
found that the fee was not aimed at any expressive content
of nude dancing but at the secondary effects of the
expression in the presence of alcohol. Id . at 286.
Specifically, the court held, "The fee is not a tax on
unpopular speech but a restriction on combining nude
dancing, which unquestionably has secondary effects, with
the aggravating influence of alcohol consumption." Id . at
287.
g) Negative secondary effects : The negative secondary
effects of the adult entertainment industry are
well-established. When the City of Los Angeles conducted a
comprehensive study of adult entertainment venues (AEVs),
it concluded that such establishments are associated with
higher rates of prostitution, robbery, assault, and theft
in surrounding communities. In 2003, the Los Angeles
Police Department (LAPD) issued its own report noting that
police are often dispatched to AEVs for criminal
violations. The LAPD noted that these violations often
include prostitution and violence. Specifically, the LAPD
noted, "The reports document violent confrontations
including stabbings and fights with weapons other than
knives, such as baseball bats. The fights appear to stem
from the customers' attempts to grab the entertainers,
exposing themselves or otherwise engaging in disruptive
behavior." The LAPD report also noted narcotics violations
at AEVs.
h) Potential amendment : If this bill is intended to
ameliorate the negative secondary effects of specified
adult entertainment, the author may wish to include
legislative findings and declarations to that end.
i) Related legislation : Committee staff notes the
following related bills:
i) AB 2914 (Calderon), of the 2007-08 legislative
session, would have imposed an adult entertainment tax to
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ameliorate the negative secondary effects of the adult
entertainment industry in California. AB 2914 was held
in the Assembly Appropriations Committee.
ii) AB 847 (Salas), of the 2009-10 legislative session,
would have imposed a 20% AEV tax to ameliorate the
negative secondary effects of AEVs. AB 847 failed
passage in this Committee.
REGISTERED SUPPORT / OPPOSITION :
Support
California Coalition Against Sexual Assault (sponsor)
Alameda County District Attorney Nancy E. O'Malley
Alliance against Family Violence and Sexual Assault
Asian Pacific Women's Center
California Partnership to End Domestic Violence
Catalyst Domestic Violence Services
Center against Sexual Assault of Southwest Riverside County
Center for Community Solutions
Center for the Pacific Asian Family
Central California Family Crisis Center, Inc.
Community Violence Solutions
Domestic Violence Intervention Center
Domestic Violence and Sexual Assault Coalition
Domestic Violence Solutions for Santa Barbara County
Emergency Shelter Program, Inc.
Family Services of Tulare County
Fresno County Economic Opportunities Commission
Haven Women's Center of Stanislaus
Lassen Family Services, Inc.
Live Violence Free
Monterey County Rape Crisis Center
Mountain Crisis Services, Inc.
Napa Emergency Women's Services
North Coast Rape Crisis Team
North County Rape Crisis and Child Protection Center
North County Women's Shelter & Resource Center
Morongo Basin Unity Home
Peace over Violence
Project Sister Family Services
Rainbow Services, Ltd.
Rape Crisis Intervention and Prevention
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Rape Trauma Services
Riverside Area Rape Crisis Center
Safe Passage
SafeQuest Solano
Shepherd's Door Domestic Violence Resource Center
Su Casa - Ending Domestic Violence
Sure Helpline Crisis Center
Verity
Wild Iris
Women's and Children's Crisis Shelter, Inc.
Women's Crisis Support - Defense de Mujeres
74 individuals
Opposition
Association of Club Executives
CalSmallBiz
Taxpayers for Improving Public Safety
Analysis Prepared by : M. David Ruff / REV. & TAX. / (916)
319-2098