BILL ANALYSIS
AB 847
Page 1
Date of Hearing: July 6, 2009
ASSEMBLY COMMITTEE ON REVENUE AND TAXATION
Charles M. Calderon, Chair
AB 847 (Salas) - As Amended: June 23, 2009
2/3 vote. Tax levy. Fiscal committee.
SUBJECT : Adult Entertainment Venue Impact Fund
SUMMARY : Imposes a 20% adult entertainment venue (AEV) tax to
ameliorate the negative secondary effects of AEVs.
Specifically, this bill :
1)Contains legislative findings noting that:
a) AEVs adversely impact the character of local
neighborhoods by, among other things, reducing local
property values, curtailing development, and engendering
many types of criminal activities;
b) AEVs endanger the health, safety, and welfare of
citizens in their vicinity;
c) These findings are consistent with, and supported by,
the findings of numerous municipalities. For example, when
the City of Los Angeles conducted a comprehensive study of
AEVs, it concluded that such establishments are associated
with higher rates of prostitution, robbery, assault, and
theft in surrounding communities;
d) These negative secondary effects, in turn, drain public
resources dedicated to public social services, and place a
significant strain on the courts of this state; and,
e) The taxes imposed by this bill are:
i) Not intended as a prohibition of legally protected
forms of expression;
ii) Intended to represent a balancing of competing
interests. Specifically, these taxes are designed to
balance the need to combat the negative secondary effects
of AEVs against the legally protected rights of adult
AB 847
Page 2
entertainment providers;
iii) Not intended to allow or license any business,
establishment, or activity that would otherwise be
unlawful under the laws of this state or of the United
States (U.S.); and,
iv) Not intended to affect, or in any way limit, the
ability of local governments to address the negative
secondary effects of AEVs.
2)Imposes, on or after October 1, 2009, an AEV tax upon all AEVs
at the rate of 20% of the gross receipts from the retail sale
of tangible personal property (TPP) in California.
3)Defines an AEV as any of the following:
a) A retail establishment whose gross receipts from the
sale or rental of "adult material" exceed 50% of all gross
receipts of the retail establishment;
b) The premises of any facility located in California that
provides a public or private viewing of "adult material";
or,
c) The public premises of any facility located in
California that offers live "sexually explicit conduct"
that is prohibited to audiences under 18 or 21 years of
age, depending on whether alcoholic beverages are sold on
the premises.
4)Provides that an AEV shall not mean a business whose primary
purpose is the provision of live performances that may include
the display of complete nudity, so long as the live
performance is a legitimate play, opera, ballet, or concert at
a concert house, playhouse or theater, museum, or educational
institution or facility on whose premises alcoholic beverages
may be sold but which derives less than 20% of its gross
receipts from the sale of alcoholic beverages.
5)Defines "adult material" to include all of the following:
a) Harmful matter, as defined in Penal Code (PC) Section
313;
AB 847
Page 3
b) Live "sexually explicit conduct" provided at a business
establishment; and,
c) Any item that includes "sexually explicit conduct" or is
subject to the requirements of 18 U.S.Code Section 2257.
6)Defines "gross receipts" to include receipts, from whatever
source, received by the AEV, excepting any sales taxes
imposed.
7)Defines "sexually explicit conduct" as any of the following
actual, but not simulated, conduct:
a) Sexual intercourse, including genital-genital,
oral-genital, anal-genital, or oral-anal, whether between
persons of the same or opposite sex;
b) Masturbation;
c) Sadistic or masochistic abuse; and,
d) Lascivious exhibition of the genitals or pubic area of
any person.
8)States that it is the Legislature's intent that all revenues,
less refunds and administrative costs, derived from this tax
be transferred to the State Treasurer to be deposited in the
State Treasury to the credit of the Adult Entertainment Impact
Fund (Fund).
9)Provides that moneys in the Fund shall, upon legislative
appropriation, be used to ameliorate the negative secondary
effects of AEVs. Such uses include:
a) Increased funding to state and local law enforcement to
combat any increased criminal activity in the vicinity of
AEVs including, but not limited to, criminal activity like
the illegal sale of controlled substances, prostitution,
and crimes against women;
b) Funding for programs to address the negative secondary
effects of AEVs on property values;
c) Funding to address related health issues, including the
testing and treatment of sexually transmitted diseases and
AB 847
Page 4
mental health treatment; and,
d) Supplemental funding for existing state and local
substance abuse treatment programs.
10)Takes effect immediately as a tax levy.
EXISTING FEDERAL LAW :
1)Requires producers of books, magazines, periodicals, films,
videotapes, or other items that contain visual depictions of
actual, but not simulated, "sexually explicit conduct" to do
both of the following:
a) Maintain records of each performer portrayed in a visual
depiction of sexually explicit conduct; and,
b) Affix a statement to the product describing where the
records are located.
2)Defines "sexually explicit conduct" in the same manner as this
bill.
EXISTING STATE LAW :
1)Imposes sales or use tax on the sale or use of 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 PC 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 Board of Equalization (BOE) has provided a
preliminary fiscal analysis estimating revenue gains of $110
million in fiscal year (FY) 2009-10, $153 million in FY 2010-11,
and $167 million in FY 2011-12.
COMMENTS :
AB 847
Page 5
1)The author states, "The author has introduced this bill to
address the negative secondary effects of adult entertainment
venues in California."
2)Opponents state, "The bill contains a definition of 'adult
material' that is overboard, includes protected constitutional
speech, and is therefore unconstitutional, since the state may
not use its taxing powers to regulate speech."
3)BOE notes the following in its staff analysis of this bill:
a) Purchases of "adult entertainment materials" from out of
state sellers : "Purchasers can acquire items regarded as
'adult entertainment materials' over the Internet, by mail,
or telephone and they can be purchased privately and
anonymously. The proposed tax increase provides further
incentive to acquire these items from unregistered
retailers outside this state, in an effort to avoid the
tax. This would create a competitive disadvantage for
California adult entertainment businesses."
b) Determining what items qualify as "harmful matter" would
be very difficult to administer and perhaps beyond the
scope of the Board : "Examining an item to see if it shows
sexually explicit conduct or has a federal disclosure
statement would pose less difficulty for Board staff, but
would still have problems."
4)Committee Staff Notes:
a) In recent years, a number of state and local governments
have either considered or enacted taxes on adult
entertainment. These taxes fall under two general
categories. The first is an excise tax 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 type 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.
AB 847
Page 6
b) Most adult entertainment is entitled to some degree of
First Amendment protection. For example, in City of Erie,
et al. v. Pap's A.M. (2000) 529 U.S. 277, 289, the 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". It should be
noted, however, that there are two types of pornography
that receive no First Amendment protection - obscenity and
child pornography. 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:
i) Average person, applying contemporary community
standards, would find that the work, taken together,
applies to prurient interests;
ii) Work depicts or describes, in a patently offensive
way, sexual conduct specifically defined by state law;
and,
iii) Work, taken together, lacks serious literary,
artistic, political or scientific value.
c) Any law targeting the negative secondary effects of
adult entertainment will likely be subject to the
intermediate 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.
d) 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
AB 847
Page 7
powers. Second, the Court noted that, "[t]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.
e) 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) The negative secondary effects of the adult
entertainment industry are well-established. When the City
of Los Angeles conducted a comprehensive study of 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. LAPD noted that these violations often include
prostitution and violence. Specifically, 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.
g) This bill is designed to address these and other
negative secondary effects. As noted above, moneys from
AB 847
Page 8
the Fund established by this bill will be used to mitigate
the negative secondary effects of adult entertainment in
California.
h) Technical amendments : Committee staff recommends the
following technical amendments to this bill:
i) Insert the word "Venue" after "Entertainment" on
page 11, line 31;
ii) Insert the word "Venue" after "Entertainment" on
page 11, line 32; and,
iii) Insert the word "negative" before "secondary" on
page 11, line 34.
REGISTERED SUPPORT / OPPOSITION :
Support
None on file
Opposition
Association of Club Executives of California
Motion Picture Association of American, Inc.
Analysis Prepared by : M. David Ruff / REV. & TAX. / (916)
319-2098