Tex. Entm't Ass'n, Inc. v. Combs

• Decision Date: 02 June 2014
• Docket Number: No. 03–12–00527–CV.,03–12–00527–CV.
• Parties: TEXAS ENTERTAINMENT ASSOCIATION, INC. and Karpod, Inc., Appellants Susan Combs, Comptroller of Public Accounts of the State of Texas, and Greg Abbott, Attorney General of the State of Texas, Cross–Appellant v. Susan COMBS, Comptroller of Public Accounts of the State of Texas, and Greg Abbott, Attorney General of the State of Texas, Appellees Texas Entertainment Association, Inc. and Karpod, Inc., Cross–Appellees.
• Court: Texas Court of Appeals

431 S.W.3d 790

TEXAS ENTERTAINMENT ASSOCIATION, INC. and Karpod, Inc., Appellants

Susan Combs, Comptroller of Public Accounts of the State of Texas, and Greg Abbott, Attorney General of the State of Texas, Cross–Appellant

v.Susan COMBS, Comptroller of Public Accounts of the State of Texas, and Greg Abbott, Attorney General of the State of Texas, Appellees

Texas Entertainment Association, Inc. and Karpod, Inc., Cross–Appellees.

No. 03–12–00527–CV.

Court of Appeals of Texas,

Austin.

May 9, 2014.

Rehearing Overruled June 2, 2014.

G. Stewart Whitehead, Elliot Clark, Winstead P.C., Austin, TX, for Appellants.

Kristofer S. Monson, Assistant Solicitor General, Office of the Attorney General, Austin, TX, for Appellees.

Before Chief Justice JONES, Justices GOODWIN and FIELD.

OPINION

SCOTT K. FIELD, Justice.

This case concerns the constitutionality of subchapter B of chapter 102 of the Business and Commerce Code, which requires certain sexually oriented businesses to pay the State an amount equal to $5 for each customer who is admitted into each business. SeeTex. Bus. & Com.Code §§ 102.052–.056; see also Combs v. Texas Entm't Ass'n, Inc., 287 S.W.3d 852, 856–57 (Tex.App.-Austin 2009, pet. granted) (discussing operation of sexually-oriented-business tax). On original submission, this Court affirmed the trial court's judgment that this statute—which we refer to as the sexually-oriented-business tax—violates the First Amendment to the United States Constitution. Texas Entm't Ass'n, 287 S.W.3d at 863–64. The Texas Supreme Court reversed this Court's judgment, concluded that the sexually-oriented-business tax does not violate the First Amendment, and remanded the case to the trial court to consider the plaintiffs' state-law claims. See Combs v. Texas Entm't Ass'n, Inc., 347 S.W.3d 277, 288 (Tex.2011).

On remand, the trial court concluded that the sexually-oriented-business tax is an occupation tax that does not violate the Texas Constitution. Texas Entertainment Association, Inc. and Karpod, Inc. (collectively the TEA) brought this appeal, asserting that the sexually-oriented-business tax violates the Texas Constitution because (1) it is an occupation tax that fails to allocate 25% of its revenue to public schools; (2) it is not an equal and uniform tax; and (3) it is a prior restraint on free speech. On cross-appeal, Susan Combs, Comptroller of Public Accounts for the State of Texas, and Greg Abbott, Attorney General of the State of Texas (collectively, the Comptroller), assert that the trial court erred in concluding that the sexually-oriented-business tax is an occupation tax. Because we conclude that the sexually-oriented-business tax is not an occupation tax, we affirm the trial court's judgment in part and reverse and render in part.

BACKGROUND

The history and structure of the sexually-oriented-business tax is fully discussed in the supreme court's opinion and will be repeated here only as necessary to dispose of the issues in this appeal. See id. at 278–79. The sexually-oriented-business tax requires sexually oriented businesses to remit to the Comptroller an amount equal to $5 for each customer who is admitted into each business.¹SeeTex. Bus. & Com.Code § 102.052(a). A sexually oriented business is defined as a “nightclub, bar, or similar commercial enterprise” that (1) features live nude entertainment for an audience of two or more and (2) allows the consumption of alcohol on the premises. Id.§ 102.051(2); see also id.§ 102.051(1) (defining “nude” for purposes of statute).

On remand to the trial court, the TEA primarily asserted that the sexually-oriented-business tax is an occupation tax, and therefore 25% of its revenue must be allocated to public schools. SeeTex. Const. art. VII, § 3(a). Given that the sexually-oriented-business-tax statute specifies that its revenue must be allocated to the “sexual assault program fund” and “health opportunity pool,” the TEA argued that the statute was an unconstitutional occupation tax. SeeTex. Bus. & Com.Code §§ 102.054–.055(a); see also Conlen Grain & Mercantile, Inc. v. Texas Grain Sorghum Producers Bd., 519 S.W.2d 620, 627 n. 3 (Tex.1975) (Daniel, J., dissenting) (noting that party can challenge constitutionality of occupation tax on basis that tax fails to allocate 25% of revenue to public schools).

In response, the Comptroller argued that the sexually-oriented-business tax is a “general excise tax,” rather than an occupation tax, and thus there is no requirement that 25% of the revenue generated from the tax be allocated to public schools. See Blacks Law Dictionary 646 (7th ed. 1999) (defining excise tax as “tax imposed on the manufacture, sale, or use of goods (such as a cigarette tax), or on an occupation or activity (such as a license tax or an attorney occupation fee)”).² Alternatively, the Comptroller asserted that if the sexually-oriented-business tax is an occupation tax, the article 7, section 3 requirement that 25% of the tax's revenue go to public schools is “self-executing,” and therefore 25% of its funding should go to public schools regardless of whether that requirement is specifically expressed in the statute.

Following a bench trial, the trial court concluded that the sexually-oriented-business tax is an occupation tax, but that the constitutional requirement that 25% of its revenue be allocated to public schools is self-executing, and thus the tax is constitutional. The court held that the Comptroller has the authority to allocate 25% of the tax's revenue to public schools and then allocate the remainder to the funds indicated in the statute. SeeTex. Bus. & Com.Code §§ 102.054–.055(a). The trial court also concluded that the sexually-oriented-business tax did not violate the Equal and Uniform Clause or Free Speech Clause of the Texas Constitution and denied the remainder of the TEA's requested relief. SeeTex. Const. art. I, § 8, art. VIII, §§ 1–2. This appeal followed.

DISCUSSION

The TEA raises three issues on appeal. First, it asserts that the sexually-oriented-business tax is an occupation tax that is unconstitutional because it fails to allocate 25% of its revenue to public schools. Second, the TEA claims that the tax is not equal and uniform because it applies only to businesses that provide live nude entertainment to audiences of two or more. Lastly, the TEA argues that the sexually-oriented-business tax is an unconstitutional prior restraint on free speech.

On cross-appeal, the Comptroller asserts that the sexually-oriented-business tax is a general excise tax, and thus there is no requirement that the 25% of its revenue be used for public schools. The Comptroller also asserts that Texas Entertainment Association, Inc. is jurisdictionally barred from this suit because it has not satisfied the requirements of chapter 112 of the Tax Code. We address the Comptroller's second issue on cross-appeal first because it concerns the trial court's jurisdiction over one of the parties to this appeal.

Sovereign Immunity

In its second issue on cross-appeal, the Comptroller asserts that Texas Entertainment Association, Inc., as an organization that is not subject to the sexually-oriented-business tax, is barred from participating in this appeal because chapter 112 of the Tax Code requires a party challenging a tax to file a protest payment.³SeeTex. Tax Code § 112.051. We addressed and rejected this argument in our previous opinion, concluding that “[d]eclaratory-judgment actions against state officials challenging the constitutionality of a statute do not implicate the sovereign-immunity doctrine because they are not considered suits against the State.” Texas Entm't Ass'n, 287 S.W.3d at 865 (internal quotations omitted), rev'd on other grounds,347 S.W.3d at 288. Although the supreme court overruled our conclusion that the sexually-oriented-business tax violates the First Amendment, the court did not discuss our sovereign immunity analysis. See Texas Entm't Ass'n, 347 S.W.3d at 288. There have been no intervening opinions from the supreme court that would justify revisiting this issue. See Briscoe v. Goodmark Corp., 102 S.W.3d 714, 716 (Tex.2003) (noting that under law-of-the-case doctrine, court of appeals “ordinarily bound by its initial decision” in subsequent appeals for same case). For the reasons stated in our prior opinion, we overrule the Comptroller's second issue on cross-appeal. See Texas Entm't Ass'n, 287 S.W.3d at 865.Is the sexually-oriented-business tax an occupation tax?

Having disposed of the jurisdictional issue raised by the Comptroller, we must next determine another threshold matter raised in the Comptroller's first issue on cross appeal—whether the sexually-oriented-business tax is an occupation tax or a general excise tax. If, as the Comptroller asserts, it is a general excise tax, then the trial court erred in concluding that 25% of the revenue generated from the tax must go to public schooling. On the other hand, if the sexually-oriented-business tax is an occupation tax, we must determine whether the statute's failure to specify that 25% of its revenue will go to public schooling makes the statute invalid. SeeTex. Const. art. VII, § 3.

Preservation

The TEA asserts that the Comptroller failed to preserve its argument that the sexually-oriented-business tax is a general excise tax for cross-appeal. Specifically, the TEA contends that the Comptroller's notice of appeal only challenges the trial court's orders denying its plea to the jurisdiction and motion to dismiss, rather than the trial court's final judgment. SeeTex.R.App. P. 25.1(b)-(c) (requiring party seeking to alter trial court's judgment to file notice of appeal to invoke appellate court's jurisdiction). Although the TEA asserts that this is a preservation issue, it is more accurately characterized as a complaint that the Comptroller failed to invoke our appellate jurisdiction. See id.; Wright v. Texas Comm'n on Human Rights, No. 03–03–00710–CV, 2005 WL 1787428, at *1 ...