Texas "Pole Tax" Doesn't Meet Expectations

July 20, 2011

Last week, the New York Times reported that the Texas government raised significantly less revenue than it predicted from the state's fee on "sexually oriented businesses," better known as the "pole tax." The state had originally predicted that the law would raise $40 million in the first year; however, only $14.5 million has been collected since the law became effective in 2007.

The courts have heard a constitutional challenge to the law, Combs v. Texas Entertainment Association, which invalidated the tax as infringing First Amendment rights.  The appeal is pending with the Texas Supreme Court.

This situation illustrates the conflicting dual goals inherent in sin taxes: Governments levy taxes to raise revenue, but sin taxes frustrate this purpose because they are meant to punish patrons of certain targeted goods or services. The Texas pole tax's revenue is supposed to fund rape crisis centers, with proponents arguing that "both strip clubs and sex crimes objectify women." Now, however, rape crisis centers will get less revenue than they were promised while businesses face the legal uncertainty of whether this tax is rightfully imposed.

For a more detailed analysis of the tax's fallacies, read Reason Magazine's recent blog post.

You can also read the Tax Foundation's earlier coverage of the pole tax's legal battles here.

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