'Sex' firms allowed to sue tax agency

An alliance of strip clubs and escort services will be allowed to take the state Tax Commission to court over a new tax for sexually oriented businesses, the Utah Court of Appeals ruled Thursday.

The owners of Trails, Crazy Goat Saloon, Northern Exposure and others claim a new law that passed during the last legislative session and went into effect in July unfairly imposes a 10 percent tax on all gross income from striptease clubs and escort services. Under the law, a portion of the money would be earmarked to help investigate and treat sex offenders.

Shortly after the new law went into effect, business owners filed for an injunction in court against the tax commission. Owners argued the new tax was a "content-based" tax that violated the First Amendment.

The commission moved to dismiss the complaint, claiming the owners had not exhausted their options before the tax commission before taking the issue to court. A trial court ordered the owners to first exhaust their appeals with the commission before suing the state.

But in its ruling Thursday the Utah Court of Appeals noted that pursuing appeals before the tax commission would not change the fact that a constitutional question exists and that exhausting other actions was not necessary.

"The issue is where the tax statute on its face violates the First Amendment, thus precluding its application at all," Justices Judith Billings and Gregory Orme wrote.

Appellate justice Russell Bench dissented, noting that the owners' claim was not sufficient to warrant a reversal of a district court's decision to throw the suit out.

The appeals court ordered the dismissal of the suit reversed and remanded the case back to district court for further proceedings.

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E-mail: gfattah@desnews.com