Prostitution Taxes as Protection Payments

“Protection payments” have long been a staple of organized crime rings. But if brothel owners in Nevada have their way, they’ll soon be a feature of state governments as well:

Nevada’s legal brothels are practically begging the state of Nevada to tax them, hoping that will endear them to the public and give them more political security and, ultimately, more business.

“We’re the only industry in the state that in one move of the legislature or the governor can be swept away entirely,” says Nevada Brothel Association lobbyist George Flint… “If we contribute and do nice things for the state, maybe the state will like us better.” (Read full AP story.)

For now, Nevada’s Republican governor Kenny Guinn isn’t buying it. The reason? He fears openly taxing prostitution would be “affirming the industry”—despite the fact that local Nevada governments already regulate brothel health standards, charge quarterly business fees and require prostitute work permits.

Brothel owners hope handing over tax payments will purchase an end to the ban on advertising, and shield them from criticism by making the state more dependent on brothel revenue. As one brothel owner said, “There’s a price, sometimes, for legitimacy.” But if the price of protection is poor tax policy in the form of distortionary and non-neutral excise taxes, brothel owners may end up with more than they bargained for.