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Nevada Supreme Court Hears First Amendment Challenge to Entertainment Tax

2 min readBy: Joseph Bishop-Henchman

In 2004, Nevada adopted a live entertainment tax, primarily as a way to collect more taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. from the state’s casinos. Under the law, Nevada live entertainment venues with 7,500 seats or more must pay a tax of 5 percent of their admissions to the state. Venues with 7,499 seats or less must pay a heftier tax of 10 percent of admissions, plus 10 percent of food and refreshments purchased. The tax is in addition to regular state and local sales taxA sales tax is levied on retail sales of goods and services and, ideally, should apply to all final consumption with few exemptions. Many governments exempt goods like groceries; base broadening, such as including groceries, could keep rates lower. A sales tax should exempt business-to-business transactions which, when taxed, cause tax pyramiding. es (which average about 7.9 percent in Nevada), and collects about $130 million per year for the state.

Some big events are also expressly exempted from the tax, such as NASCAR races, baseball games, and outdoor concerts (except those held at casinos). The Associated Press notes that the Burning Man festival and Electric Daisy Carnival are also exempt from the tax.

One non-casino group that is not exempted from the tax are strip clubs. Encompassed by the broad language of the law and not politically powerful enough to lobby for an exemption (like NASCAR was), they’re stuck paying fairly hefty taxes. And they’re suing:

In arguments before the Nevada Supreme Court, lawyers for the clubs argued the tax violates the First Amendment because it targets adult entertainment content.

“This is a direct taxA direct tax is levied on individuals and organizations and cannot be shifted to another payer. Often with a direct tax, such as the personal income tax, tax rates increase as the taxpayer’s ability to pay increases, resulting in what’s called a progressive tax. only on expression,” said Bradley Shafer, representing the seven club owners.

The strip clubs featuring nude and topless dancers have been paying the 10 percent tax for the past decade but want a refund from the Department of Taxation. The amount of refunds sought has not been disclosed.

But Blake Doerr, senior deputy attorney general for the tax department, […] dismissed Shafer’s contention that it taxes expression, saying the dancers themselves are not taxed to perform but rather patrons are charged to attend. He described it as a tax on a business transaction with “no intent to stifle the message.”

The Nevada Supreme Court heard arguments yesterday. The challengers have an uphill climb: courts usually give states a lot of latitude to tax some people and not others. The Texas Supreme Court, for instance, upheld a direct $5-per-strip-club-customer tax against a First Amendment challenge, holding that venues could avoid the tax by not serving alcohol.

But the exemptions Nevada has written into the law should give the justices pause:

Justices Kristina Pickering and Michael Douglas wondered about the “family type” entertainment exemptions and the narrowing effect they had on the application of the law.

At what point do the exemptions become so large that the tax is effectively a tax on disfavored expression?