Texas Tax Roundup | June 2022

• Published date: 13 July 2022
• Subject Matter: Government, Public Sector, Tax, Constitutional & Administrative Law, Tax Authorities
• Law Firm: Freeman Law
• Author: Mr TL Fahring

Things have been heating up this summer. Let's see what's been cooking with the Texas Comptroller's office.

Cases

U.S. Fifth Circuit Court of Appeals

Texas Entertainment Association (TEA) v. Hegar, 10 F.4th 495 (5th Cir. 2021)'On June 21, 2022, the U.S. Supreme Court denied the Comptroller's petition for writ of certiorari with respect to the Fifth Circuit's opinion.

• The case involved the sexually oriented business fee under Bus. & Com. Code ' 102.052 (Fee Based on Admissions Records). This fee is imposed on certain commercial enterprises that provide live nude entertainment or performances, with "nude" meaning "entirely unclothed" or "clothed in a manner that leaves uncovered or visible through less than fully opaque clothing any portion of the breasts below the top of the areola of the breasts, if the person is female, or any portion of the genitals or buttocks." See id. ' 102.051(1), (2) (Definitions) 102.052(a).
• The Comptroller had enacted a rule defining "clothing" to exclude "[p]aint, latex, wax, gel foam, film, coatings, and other substances applied to the body in a liquid or semi-liquid state . . . ." 34 Tex. Admin. Code ' 3.722(a)(1) (Sexually Oriented Business Fee). The rule was aimed in part at so-called "latex clubs," which required that dancers wear shorts and opaque latex over their breasts.
• The Fifth Circuit held that the Comptroller's rule violated the First Amendment to the U.S. Constitution because the rule was directed at the essential expressive nature of latex clubs' business and the Comptroller had made no showing that the rule was narrowly tailored to serve a compelling state interest. The Court also held that the retroactive application of the rule upon latex clubs violated the Due Process Clause of the Fourteenth Amendment to the U.S. Constitution.
• However, the Fifth Circuit determined TEA had not shown that the rule violated the Equal Protection Clause of the Fourteenth Amendment, because there was no showing that latex clubs were treated differently from similarly situated establishments. The TEA had argued that sports bars with scantily clad waitresses and concerts, body paint competitions, and bodybuilding competitions where latex was worn were similar to latex clubs. But, the Fifth Circuit wasn't buying it.
• With denial of cert, the Fifth Circuit's decision in this case stands.

Texas Supreme Court

Hegar v. Health Care Service Corporation, No. 21-0080 (Tex. June 17, 2022)'The Texas Supreme Court held that premiums from...