Be cause the appe llants’ interes t s ar e aligned, w e will ref er to them c ollectively

as “the 1 Comptroller.” F or purp os e s re la te d to TE A and Ka rp od ’s state c on sti tut ion a l c la ims , th e pa rt ie s d isp ute 2 whether the assessment at issue in this case is properly considere d a tax or a fe e. We will adopt the lang uag e of the trial court’ s order , which re fer s to the assessment as a t ax . However, be cause we need not r eac h the state c onstitut ional claims in this appeal, we express no opinion on whether the assessment imposed by

subchapte r B is properly considere d a tax or a fe e. 

### TEXA S C OU R T OF A PPEAL S, THIR D DIST R ICT , AT AU STIN

NO. 03-0 8 -00 213 -CV

Sus an Com bs, Com ptroller of P ubl ic Acc ounts of the State of T exas, and Gre g Abbott, Attor ney Ge neral of the State of Texas , Appellan ts
v. Texas Entertainm ent Association, Inc . and Karpod, In c., Appellees

F ROM THE DISTRICT CO URT OF TRAVIS COUNTY , 345TH JUDICIAL DISTRICT NO. D-1- GN-07- 0041 79 , HO NORAB LE SCO TT H. JENK INS , JUDGE PRESIDI NG

O P I N I O N The Comptroller of Public Ac counts and the A ttorney Gene ral of the State of Te x as 1 appea l the trial court’ s judgme nt in a suit for dec laratory and injunctive re lief broug ht by Texas Entertainment Association, I nc. (“ TEA”) , and Ka rpod, Inc. The t ri al court’s judgme nt decla red subc hapter

B of chapte r 47 of the busine ss and commer ce c ode unconstitutio n al and perma nently enjoi ned the Comptroller fr om assessing or collec ting the ta x imposed by that subchapte r. See Te x. B us . & Com . Co de Ann. §§ 47 .0 51 -. 05 6 ( Wes t Su pp . 2 00 8) . B e c a

us e we ho ld 2Af te r o r a l ar g u m e n tw a s h e ar d i nt h i s c a s e , b o t h s i d e s r e qu e s t e d l e a v e t o f

i l e p os t- 3 submissi on briefs. Those motions are her eby g rante d. 2 that subchapte r B violates the F irst Amen d ment to the United States Constit ution, we af firm the tr ia l c ourt ’s jud g me nt. See U
. S
. C o n s t
. a m e n d
. I. 3
BACK GR OUND I n 2007, the Texas L eg islature enacted chapter 47, subchapte r B, of t he business and
commerc e code, which imposes a tax “on a sexually oriented business in an a

mount equal to $5 for
eac h entry

by eac h customer admitted to the bus iness.” Tex. Bus. & C om. Code Ann. § 47.052(a ). Th e statut e fu

rt he r d e fi ne s a

se xua lly or ie nte d b us ine ss ( “ SOB ” ) a s:

a nig htc lub , b ar, re sta

ur ant, or sim ila r c omm e rc ia l e nte rp ri se that: (A) pr ovides for a

n audienc e of two or

more individuals live nude ente rtainment or live nude per formanc es; and (B ) authorizes on-pr emises consumption of alc o holic bever ag es, re g ardle ss of whether the consumption of alcoholic be vera g es is unde r a license or per mit is sued under the Alcoholic B ever ag e Code.
Id. § 47 .0 51 (2 ). As a

re su lt, the ta x ap pli e s o nly to b us ine sse s th a t pe rm it a lc oh ol c on su mpt ion in the pre sence of l ive, nude enter tainment. “Nude ” is define d as “entirely unclothed” or

“unclothed in a manner

that leave s uncover ed or visible throug h less than fully opaque clothing a

ny portion of the bre asts below the top of the are ola of the brea sts, if the person is fe male, or a ny portion of the g enitals or but tocks.” Id. § 47.051(1). A busine ss subject to the tax i s not require d to impose the tax on i ts customers, but may use its disc retion in de termining how it will der ive the money require d to pa y the tax. Id. § 47.052(c)
. The legislature allocate d the first $25 m illion i n reve nue re ceive dDuring the 2007 s es s i o n , t he leg islature also re peale d chapte r 47 of the busine ss and 4 commerc e code , eff

ective A pril 1, 2009, as part of a nonsubstantive statutory revision prog ram. See Act of Ma

y 15, 2007, 80th L eg ., R.S., ch
. 8 8 5 , § 2
. 47(a) (1), 2007 Te x . Gen. L aws 1905, 2082. Sub c ha pte r B of c ha pte r 4 7 w a s e na c te d w ith ou t r e fe re nc e to t his re pe a l. I n light of i t s fi nding that the statute is unconstituti onal under the Fir st Amendment, the 5 tr ia l c ourt de c lin e d to re a c h T EAand Ka rp od ’s state c on sti tut ion a l c la ims
. 3 from the SOB tax t o the State’s sexual assault prog ram fund a nd the re maining r even ue to the Texas health opportunity

pool to fund health insuranc e for low-income Texans. Id. §§ 47.054-.055. The SOB tax went into effec t on J anuar y 1, 2008. 4 I n r e sp on se to t

he e na c tme nt o f s ub c ha

pte r B , K arp od , a

se xua lly or ie nte d b us ine ss,
and TE A, an a sso c ia tio n re pr e se nti ng the int e re sts of se xua lly or ie nte d b us ine sse s in

Te xas, fi le d s uit fo r d e c larator

y and inj un c tiv e re lie f a g a ins t th e Com ptr oll e r, a sse rt ingthat th e ta x viol a te d th e state and fe dera l c onstitut ions. After a bench trial, the trial court issued a dec laratory judgme nt that the statute violated the F irst Amendment to the United States Constitut ion, permane ntly enjoined the Comptroller from collec ting or assessing the tax, and awa rded attorney s’ fe es in favor of TEA a nd Kar pod. This appea l followed. 5
DI SCU SSIO N On a pp e a l, t he Com ptr oll e r a rgue s (1 ) th at the SOB ta x doe s n ot v iol a te the F ir st Amendment, (2) that the SOB ta x does not viol at e t h e T ex as Constitut ion, (3) t h at s o v er ei gn immun ity ba rs su it b y TE A, and

(4 ) t hat th e tr ia l c ourt

e rr e d in awa rd inga tto rn e y s’ fe e s.
The Fir st A mendme nt We not e a t th e ou tse t th a t “ the fa c t th a t pr ote c te d s pe e c h ma y be of fe ns ive to s ome does not justify

its suppression.” Carey v. P opulation Servs. Int’l , 431 U. S. 678 , 701 (1 97 7)
. I n f a c t,4

“it is in those instances where protec ted s peec h g rate s most unpleasa ntly ag ainst the sensibiliti es that ju d ic ia l v ig il an c e mu s t b e a t it s h e ig ht.” Y o u n g v. Ame rican Mini Theatres, Inc. , 427 U.S. 50, 87 (1976) ( plurality

opinion) (Stewar

t, J ., dissenting)
. I n conductingour F irst Amendment ana ly sis, we must first determine w hether the SOB tax is s u b

j ec t t o strict or intermediate scrutiny . Content-based r estrictions on speec h are p r e s u mp t i v e l y i n v a l i d

a n d s u b j e c tt o s t r i c ts c r

u t i n y. See, e .g. , City

of L os An ge le

s v . A lam e da Bo ok

s, Inc. , 5 35 U. S. 4 25 , 4 34 (2 00 2) (p lur a lity op ini on ). I n o rd e r t o w ith sta nd str ic t sc rutiny , a

statut e
mus t be na

rr ow ly ta ilo re d to pr omo te a

c omp e lli ngg ove rnme nt i nte re st. See, e .g. , United States v. Playboy Entm’t Group, Inc. , 529 U.S. 803, 813 (2000). The Comptroller conce des that the SOB tax cannot survive a strict sc rutiny analy sis, arg uing instea d that the t ax i s co ntent-neutra l and there fore subject to intermediate s cr u tiny . A content- neutra l restriction on spee ch withstands int e rm e diate sc rutiny

“ if the c on du c t it se lf

may c on sti tut ion a lly

be re g ulat ed, if

the re g ulatio n is
narr owly draw n to further

a substantial g overnme ntal interest, and if the intere st is unrelated to the suppression of fr ee spe ech.” Clark v. Community for Creative Non-Violenc e , 4 6 8 U. S
. 2 8 8, 294 (1 9 8 4 ) ( ci t i n g United States v. O’ Brien , 391 U.S. 367, 376 (1968)). “As a g ener al rule, la

ws that by

their terms distinguis h fa v o re d speec h from disfavore d speec h on the basis of t he ideas or views e x presse d are content-ba sed,” w hile “laws that confe r bene fits or impose burdens on spe ech w ithout refer ence to the ideas or vie ws expressed ar e in most i nstance s content-ne utral.” Tur ne r B ro ad

. S y s. , I nc . v . FCC , 512 U.S. 622, 643 (1994). The principal inquiry

in determining content neutr ality “is whethe r the g o v er n m en t has adopte d a regulation of speec h beca use of disag ree ment with the messag e it convey s.” W ar d v . R oc k Ag ain stWhil e the Comptroller c hara ct er i zes the SOB tax as a “mode st fee” of five dollar s 6 per c ustomer, “the le vel of the f ee is irr eleva

nt. A tax based on the co n t en t o f speech does not become more c onstitut ional b ecause it is a small tax .” Forsyth County v. Nationalist Move ment , 505 U.S. 123, 136 (1992). 5 Ra c ism , 491 U.S. 781, 791 (1989). Rule s ar e gen er ally considere d content-ba sed whe n the regulating party must examine the spee ch to deter mine if the re striction applies. See, e .g. , Fo rsy th County v. Nationalis t Move ment , 5 0 5 U
. S. 1 2 3 , 1 3 4 ( 1992); Arkansas W riters’ Project, Inc

. v. Ragland , 4 81 U. S. 2 21 , 2 30 (1 98 7) ; FCC v. L eague of W omen Voters of Cal., Inc. , 468 U.S. 364, 383 (1984). Whil e nude da ncing “fa lls only

within the outer ambit o f t h e First Amendment’s protec tion,” it is nevertheless pr otected a s expressive conduct. City of Erie v. Pap’s A.M. , 5 29 U. S. 2 7 7 , 2 8 9 ( 2 0 0 0 ) ( p l u r a l i t y o p i n i o n )
. In ar g u i n g t h a t t h e S O B t a x i s s u b j e c tt o i n t e r

m e d i a t e s c r

u t i n y, the Comptroller points to cases in w hich the U.S. Supreme Court ha s applied intermediate scrutiny to zoni ng restric tions a imed at the sec ondary eff ects of busine sses offe ring adult enter tainment. See Alameda Book

s , 535 U.S. at 434 (plurality opinion ) (z oning or dinance prohibiting more than one

“ a du lt en te rt a inm e nt b us ine ss” in s ing le bu ild ing ); Renton v. Play time Theatres, Inc

. , 475 U.S. 41, 48 (1 98 6) (zo nin g or din anc e re str ic tin g loc a tio n o f a du lt m ov ie the a te rs ); Y oung , 427 U.S. at 71-72 (plurality opinion) (same)
. Unlike the restric tions at issue in Alameda Book s , Renton , and Y

oung , the SOB ta x is not a zoni ng restric tion, but a tax on businesses that offe r live, nude enter tainment in the prese nce of a lc oh ol. The U.S. Supreme Court has sugg ested that zoning restrictions direc ted t o seconda ry 6 eff ects of spe ech are inhere ntly differ ent from other

ty pes of r estrictions on speec h. See A lamedaB e c a us e Justi c e Ke nn e dy

c on c ur re d in the jud g me nt o f t

he Cou rt on the na rr ow e st g ro un ds , 7 his concurr ence repr esents the Court’s holding in Alameda Book s . See Marks v. Unit ed

States , 430 U. S
. 1 8 8 , 194 (1977) (“ Whe n a fr a g me nte d Co ur

t de c ide s a

c a se and no sin g le ratio na le explaining the re sult enjoy s the assent of f ive J ustices, the holding of the Court may be viewe d as that position take n by those Members who conc urre d in the judgme nts on the narr owest g rounds.”) (interna l quotation marks and citation omitted). 6 Books , 5 3 5 U. S
. at 4 4 9 (p l u ra l i t y o p i n i o n ) ( Ke n n ed y , J
. , co n cu rr i n g) (“[Z ]oni ng regulations do not 7

a u to mati c a ll y r a is e th e s p e c te r o f im p e r mi s s ib le c o n te n t d is c r im in a ti o n . . . b e c a u s e th e y have a prima fa cie leg itimate purpose: to limit the neg ative externalities of land use . . . . [T] hese sor ts of ordinanc es ar e more like a zoning r estriction on slaug hterhouses a nd less like a tax on unpopular

ne wsp ap e rs .” ) ( e mph a sis a dd e d) ; Y oung , 427 U.S. at 62, 73 n.35 (plurality opinion) (stating that the
zon ingor din anc e ’s re str ic tio ns are so min ima l th a t “ the mark e t for this c omm od ity is e sse nti a lly unrestra ined” a

nd that “[t] he situation would be qui te diffe rent if the or dinance had the e ffe ct of suppressing , or g reatly

restric ting a cce ss to, lawfu l s p ee ch ”). Bec ause zoning ordinanc es ar e disti ng uishable fr om other re strictions on speech, w e do not find the F irst Amendment ana ly ses applied in zoning cases t o be particularly rele vant t o the present case . See A lameda Book s , 5 35 U. S.
a t 44 5 ( plu

ra lity op ini on ) ( Ke nn e dy , J., c on c ur ri ng ) ( statin g that city

c ou ld r e g ulate se c on da

ry e ff e c ts
o f a d u l te n t e rt a i n m e n tb u s i n e s s e s w i t h z o n i n g o r d i n an c e , b u tc o u l d n o t s u p p r e s s t h e s p e e c h i t s e l f

b y, “for example, imposi ng a conte nt-based f ee or tax”). Fur thermore , while t he Supreme Court has held that bans on public nudity should be revie wed with interme diate scrutiny as content-ne utral restric tions, the public- nudity bans at issue in t ho se c a se s did not sin g le ou t a spe c if ic c la ss of F ir st Ame ndme nt spe a ke rs , as t he SOB ta x doe s. See P ap’s A.M. , 529 U.S. at 290 (plurality opinion) (“B y

its terms, the ordinance regulates conduc t7

a l o n e . It d o e s n o t t ar g e t n u d i t y t h a t c o n t a i n s a n e r o t i c m e s s a g e ; r a t h e r , i t b an s a l l p u b l i c n u d i t y,
re g ard le ss o f w he the r t

hat nu dit y is a c c omp anie d by e xpre ssi ve a c tiv ity .” ); Barnes v. G len Theatre, Inc. , 501 U.S. 560, 566, 571 (1991) ( p l u ralit y opinion) (“Indiana, of

course , has not banne d nude dancingas such, but has pr oscribed public nudity acr oss the board. . . . Publ ic nudity is the evil the State seeks to pre vent, whethe r or not it is combined with expressive activity .”).

Hav in g f o u n d th e c a s e s inv o lv in g zo n in g r e s tr ic ti o n s an d to ta l n u d it y bans inapplicable to the pr esent c ase, w e now turn to the body of law a ddressing differ ential taxation of First Amendme nt speake rs. The S OB tax targ ets a sm all g roup of taxpay ers eng ag ed in expression protec ted by the First Amendment, even if only marg inally so. See Barnes , 501 U. S. at 56 6 ( plu ra lity opinion). A tax i mposed on a small g roup of F irst Amendment speakers, part i cu l arly a g roup convey i n g a m es s age that the taxi ng body might conside r undesira ble, ca rries a g reater risk of
su pp re ssi ngsp e e c h th an a

zon ingor din anc e becau se “th e po we r t o tax invo lve s th e po we r t o d e s tr o y . ” Mc C u l l o ch v. Maryland , 1 7 U .S. 31 6, 43 1 ( 18 19 ). As the Sup re me Cou rt state d in Leathers v. Me dlock : [D] iffer ential taxation of First Amendment spea kers is constitutionally

suspect whe n it thr e a te ns to s up pr e ss t

he e xpre ssi on

of pa rt ic ula r i de a s or vie wp oin ts.
. . . A ta x is also suspect if it targ ets a small gr oup of speakers. Ag ain, the fe ar is ce nsorship of particula r i deas or viewpoints. Finally , for reasons that are obvious, a ta x will trigg er heig htened sc rutiny

under the First Amendment if it discriminates on the basis of the content of ta x pay er spe ech.
499 U.S. 439, 447 (1991) (citations omitted). “A power to tax differe ntially , as opposed to a pow er to tax g ener ally , g ives a g overnme nt a power ful wea pon ag ainst the taxpay er selec ted.” Mi nn e ap oli s Star & Tribune Co. v. Minnesota Comm’r of Rev enue , 460 U.S. 575, 585 (1983).8 A s e le c ti v e taxa ti o n s c h e me in w h ic h an e n ti ty ’ s tax s tatu s d e p e n d s e n ti r e ly o n the content of its spee ch is “par ticularly repug nant to First Amendment pr inciples.” Ar k an sa s W rit e rs’ Project , 4 8 1 U
. S. a t 2 2 9
. A s a r e s u lt , d if

f e r e n ti a l t a xa ti o nb a s e d

o nc o n te n t i s s u

b je c t t o s tr ict
s c rutiny
. Id. at 231. A taxing statute is content-ba sed if it “sing les out income der ived from expressive activity for a burden the State place s on no other income , and it is directed only at works with a spec ified conte nt.” Simon & Schuster, Inc. v. Me mb ers of N.Y . State Crime Victims Bd. , 502 U.S. 105, 116 (1991). Where taxi ng authorities must nece ssarily ex amine the c ontent of the
mess a g e th a t is c o n v e y e d , “ [s ]u c h o f f ic ia l s c r u ti n y o f th e c o n te n t o f p u b li c a ti o n s a s th e basis for impos i n g a t ax i s entirely incompatible” with the F irst Amendment. Arkansas W riters’ Project , 481 U.S. at 230.

Testimony at trial reve aled that in or der to de termine whether the SOB tax should be assessed a g ainst a par

ticular taxpay er, r epre sentatives fr o m t he Comptroller’s off ice would be require d to examine the content of the e x pressive c onduct. For example, Steven Whit e, a pr og ram sp e c ia lis t in

the Com ptr oll e r’ s tax p oli c y div isi on , te sti fi e d that if a pla y inv olv ingnu dit

y wa s h e ld at a bar o r o ther e stablishment that serves a lcohol, the owner of the e stablishment would not be subject to the SOB ta x beca use “the main ingr edient of the perf ormanc e is not nece ssarily that of live nude ente rtainment.” White also testified that a c om ed y show involving nudity

at a ve nue whe re alcohol is sold would not trigg er the SOB tax, beca use “the es s en ce of that perf ormanc e is not
nece ssarily

one of live nude enter

tainment.” Whit e further explained that a bar hosting a “w et t-shirt cont es t” or a

bar at which bar

tender s periodica lly

perf orm danc e routines a

nd become nude as define d by

the statute would be subjec t to the tax . Simi larly , Emma Fue ntes, an a uditor in the9

C o mp trol ler ’s o ff

i ce t es t i fi ed , “U s i n g m y

o wn j u d gm en t , Iwo u l d

l o o k at t h e t ax p ay er

we ’r e a u d i t i n g. I f it’s lik e a t h ea ter that puts on play s and conc erts I would think that may

be this fee was not appropr iate for

them . . . [b] eca

use th e whole essence of the tra nsaction to me would be f or somebody

to go se e a pla

y and not so muc h a sexually oriented business.” These e x amples re veal that the SOB ta x is not imposed in a ll incide nts w here live nude enter tainment occur s in the prese nce of a lc oh ol, bu t only in tho se sit uatio ns in w hic h th e ta xing a uth or ity —th e Com

ptr oll e r— de te rm ine s, afte r examining the c ontent of the e x pression, that it repr esent s t h e “e s s ence” of live nude enter tainment. This ty

pe of diff ere ntial tax ation based on content is prec isely the t y pe of r estriction
war ranting strict scrutiny

in Arkansas W

riters’ Project , Minneapolis Star , and Simon & Schuster
. The bulk of the te stimony at trial foc used on th e C o m ptroller’s a rg ument that the SOB tax is aimed at reduc ing the seconda ry eff ects of se x ually

oriented businesse s. Howeve r, a ta x on speec h is not necessa

rily content-ne utral simply

beca use it is aimed at sec ondary eff ects. See Fo rsy th C ou nty , 505 U.S. at 134. Whil e interme diate scrutiny is applied to zoni ng regulations aimed at dec rea sing se condar

y ef fe cts, zoning re g ulations are disting uishable fr om differ ential taxation s tatutes, as pre viously discussed. See A lameda Book s , 535 U.S. at 449 (plurality opinion) (Ke nnedy , J ., concur

ring ) (stating that desig nation of zoning re strictions on adult entertainment bu sin e sse s a s “ c on te nt- ne utr a l” is le g a l fic tio n use d be c a us e “ [t]he zon ingc on te xt pr ov ide s a bu ilt -i n leg itimate r ationale, which rebuts the usual presumption that content-ba sed restrict i o n s are unconstitutional”). I n light o f t h i s d i s t inction, evidence that the SOB ta x is aimed at re ducing seconda ry eff ects of sexually oriented businesses does not pre clude the pr oper a pplication of strict scrutiny in this case.We note that the Court’s holding in 44 Liq uo rm ar t did n o t fo re cl o s e the possibi lity of a 8 state u s in g it s inh e r e n t p o li c e p o w e r to p la c e r e s tr ic ti o n s o n th e s a le o f a lc o h o l in th e p rese nce of nude danc ing. See 44 Liquormart, Inc. v. Rhode I sland , 517 U.S. 484, 516 (1996). Howeve r, such use of a st ate’ s police powe r must satisfy First Amendme nt scrutiny
. See Y oung v. Ame rican Mini Theatres, Inc. , 427 U.S. 50, 80 (1976) (plura lity opinion) (Powell, J ., concur ring ) (stating that “no aspe ct of the police power enjoy s immuni ty

from sea rchingconstitutional scrutiny ”). 10 The Comptroller also arg ues t hat t he S tate has the power to categ orica lly ban nude dancingor the sale of alcohol in the prese nce of nude danc ing, a

nd there fore the SOB ta x must be constitutionally

permissible bec ause it is le ss r estrictive than a total ban. F irst, the Supreme Court
case s relied

u p o nb y th e Co mp tr o ll e r

f o r th e p r o p o s it io nth a t t

h e St a te ma

y b ann u d e d a n c ing altog ether ref er, a s previously

discussed, to conten t -n eu t ra l bans on nudity in ge nera l, rather

than specific prohibitions on nude danc ing. See P ap’s A.M. , 5 29 U. S. at 29 0 ( plu ra lity op ini on ); Barnes , 501 U.S. at 5 6 6, 571 (plurality opinion). Second, with reg ard to the pow er to ba n alcohol in the prese nce of nude danc ing, the Supreme Court held in 44 Liquormart, Inc. v. Rhode I sland , 5 17 U. S. 484, 516 (1996), that “ the Twe nty -first Amendme nt does not qualify t h e constitutional p r o h i b i t i o na g a i n s tl aw s a b r i d g i n g t h e f

r e e d o m o f

s p e e c h e mb o d i e d

i nt h e F i r s tA m e n d m e n t
. ” In other wo rd s , a state’ s regulatory power over the sale a

nd use of a lcoholic beve rag es under the Twent y -first Amendme nt cannot be use d to shield the suppression of spee ch fr om constituti onal scrutiny
. See id. 8

F ur the rm ore, we dis a g re e wi th t he Com ptr oll e r’ s a fo rti or i argument that if a g overnme nt may , in the interest of public safe ty , ban alcohol in the pre sence of nude da ncing , it may also impose a tax on establishments that provide alcohol in t h e p re s en ce of nude da ncing . The11

reason th is argum ent

fai ls is bes t ad dres sed

by th e follow ing

a nalog y po sit e d b y the U. S. Su pre meCou

rt : [T] he situation become s the same a s if California lawforba de shouting fire in a crow ded theater, but g rante d dispensations to those willing to contribute $100 to the state trea sury . Whil e a ba n on shouting fir e ca

n be a cor e ex er ci s e of the State’s police powe r to protec t the public safe ty , and ca n thus meet eve n our string ent sta nd ard s f or re g ulatio n of sp e e c h, a dd ingthe un re la te d c on dit ion a lte rs the purp os e to one which, while it may be leg itimate, is inadequate to sustain the ban. There fore , e ve n tho ug h, in a se ns e , re qu ir ing a $1 00 ta x co ntr ibutio n in

or de r t o s ho ut f

ir e is a lesser restric tion on speec h than an outrig ht ba n, it would not pas s co n s t i tutional muster.
Nollan v. Cali

fornia Coas tal Comm’n , 483 U.S. 825, 837 (1987). As this hy pothetical sug g ests, the po we r t o b an s pe e c h p ur su ant t o a g ov e rnme nt’ s p oli c e po we r d oe s n ot p re su pp os e the p ow e r t o impose a financ ial disincentive on such spe ech. T his re as o n i n g is even more applicable in the prese nt case beca

use the a ct of shouting fire in a crow ded theater , unlike nude dancing , is not subject to First Amendment pr otection at all. See Sc henck v. United States , 249 U.S. 47, 52 (1919). The Supreme Court has held that whil e a g overnme nt has t he powe r to regulate the
us e and sa le of a lc oh ol, it “ may no t de ny

a be ne fi t to a

pe rs on on a ba sis that in fr ing e s h is constitutionally

protec ted intere sts—especia lly his inter est in f ree dom of speec h.” 44 Liq uo rm ar t , 5 1 7 U.S. at 513 (interna l quotation marks and citation omitted). “[I ]f the gove rnment could de ny a bene fit to a person be cause of his constitutionally protec ted speec h or assoc iations, his ex erc ise of tho se fr e e do ms w ou ld i n e ff e c t be pe na lize d a

nd inh ibi te d. This w ou ld a llo w the g ov e rnme nt t o ‘produc e a result which [i t] could not c ommand direc tly .’” Perry v . Sindermann , 408 U.S. 593, 597 (1 9 7 2 ) ( qu o t i n g Sp e ise r v . R an da ll , 357 U.S. 513, 526 (1958)) . This is precisely what the State se eks to do in the prese n t ca s e. By co nditioning the ability to sell alcohol on the for feiture of aT h e f a c t t h a t t h e r e is n o c o n s ti tuti o n a l r ig h t t o p r o v id e a lc o h o l i nth e p r e s e n c e o f nude 9 dancingis imm ater ial beca use “e ven thoug h a per son has no ‘rig ht’ to a valua ble g o v er n m en tal benef it and even though the g overnme nt may deny him the benefit for any number of rea sons, there are some rea sons upon which the gover nment may

not rely ,” including those that demand the surre nder of

a constitutional rig ht. Perry v . Sindermann , 408 U.S. 593, 597 (1972).
12 First Amendme nt rig ht, the S tate attempts to produce a re sult—the imposi tion of a conte nt-based ta x
o ns p e e c h

— w h i c h i tc o u l d

n o tc o m m an d

d i r e c t l y. 9 Fur thermore , we disagr ee with the C omptroller’s chara cter ization of t he SOB tax as
an a lc oh ol r e g ulatio n, rathe r tha n a tax on sp e e c h. Whil e it i s tr ue that a se xua lly or ie nte d b us ine ss
ow ne r m ay

a vo id t he ta x b y c ho os ing no t to a llo w the c on su mpt ion of a lc oh ol o n th e pr e mis e s, thi s aspec t of the SOB ta x is insufficient to tr ansfor m a content-ba sed tax into a content-ne utral alc ohol regulation. I n revie wing the plain lang uag e, conte x t, and leg islative history of the re levant statutory provisions, we ar e not convinced that “the statute’s pre dominant purpose is with regulating the service of alc ohol,” as wa s the ca se in Illusions - Dallas Priv ate Club, Inc . v. Stee n , 482 F.3d 299, 309 (5th Cir. 2007), in which the F ifth Circuit applied intermediat e s cr u t i n y to a provision of the Texas Alcoholic B ever ag e Code prohibiting s e xu a ll y o r ie nte d b u s in e s s e s f

rom obtaining private c lub pe rm its fr om t

he Te xas A lc oh oli c B e ve ra g e Com mis sio n ( TA B C) to se rv e a lc oh ol in d ry c ounti e s. See Tex. Alco. Bev. Code Ann. § 32.03(k) (West 2007). I n Illusions , the Fif th Circuit held that the statute at issue wa s “par

t of a ‘web’ of alcohol reg ulations,” which a re unr elated to the suppr ession
o f s p ee c h , a n d e m p h as i z edt h e s t at u t o ry co n t ex to f t h e p ro h i b i t i o nwi t h i nt h e a l co h o l i c b ev er age
c od e , w he re it a

pp e ars a lon g sid e oth e r p ro vis ion s all owi ng TAB C to re g ulate the sa le of a lc oh ol. 48 2 F .3 d at 30 9; see also id. at 308 (c oncluding “that § 32.03(k) is subject to intermediate scrutinyTAB C is authoriz ed to “e x erc ise al l p o we rs, dut ies, and func tions confer red by” the 10 alcoholic be vera g e code , and “shall inspect, supervise, and regulate ever y phase of the business of manufa cturing , importing, e x portin g , transporting , storing, se lling, adve rtising, labe ling, a nd dis tr ibutin g a lc oh oli c be ve ra g e s, and the po sse ssi on of a lc oh oli c be ve ra g e s f or the purp os e of

sa le or otherw ise.” Te x . Alco. B ev. Code Ann. § 5.31 ( West 2007). We note also that chapte r 183 of the tax code, whic h imposes a tax on gross re ceipts der ived fr om t he sa le of “ mixe d b e ve ra g e s, ” inc lud e s a “ c on fl ic t of

ru le s” pr ov isi on

to g ov e rn

c on fl ic ts b e tw e e nr e g u lati o n s is s u e d b y T A B C a n d th o s e is s u e d b y th e Co mp tr o ll e r in th e c o ll e c ti o n o f th e tax. See Tex. Tax Code Ann. § 183.052 (West 2008). No simil ar provision appear s in the SOB tax statute , s u g g e s ti n g th a t t h e le g is latu

r e d id n o t c o n te mp late th e e xe r c is e o f T A B C’ s r e g u lato ry a u th o r it y in c o n n e c ti o nw it

h th e SO B tax. 13 becaus e it s p r e d o mi n an t p u r p o s e , a s e xh ib it e d

b y it s p la in

te xt a n d it s p la c e w it

h in the Texas Alcoholic B ever ag e Code, is unre lated to the suppre ssion of speec h”).

The SOB tax, on t he other hand, is not part of a “w eb” of alcohol re g ulations imposed by the alcoholic bever ag e code, but a ppear s in c hapter 47 of the business and c ommerce code, w hich g overns se x ually

oriented businesse s. The SOB tax i s remitted to the Comptroller, see Te x. B us . & Com. Code Ann. § 47.053, and, unlike the statuto ry provision at issue in Illusions , does not inv olv e the re g ulator

y ov e rs ig ht o f T AB C. The orig inal version of the SOB t ax proposed in the 10 leg islature and pa ssed by the House of

Represe ntati v es made no mention of alcohol at all. See Tex. H.B. 1751, 80th L eg ., R.S. (2007) (as pa ssed by House, May

9, 2007). The bill was later
amen ded in the Senate to restrict the pool of ta x pay ers to those sexually oriented businesse s that allowed a lcohol on the pre mises. See S.J . of Tex., 80th L eg ., R.S. 3043 (2007). As TEA and K arpod point out in t heir brie fs, this chang e mirror ed a simi lar amendment orig inally proposed in the House ,
see H.J
. o f T ex . , 8 0 th L eg ., R.S. 3573 (2007), after a hea ring befor e the House Way s and Mea ns Commi ttee, in which ther e wa s some discussion reg arding the additional audit burde n that the SOBDuring the hea ring , a repr esentative from the Comptroller’s office testified that the SOB 11 tax would create “an a dditional audit burden” a nd stated that “the s e p ar t i cu l ar establishments are regulated by

the TABC and they are subject t o audit alre ady by the TABC,” so “[h] opefully we c an join force s wi th the TAB C.” When asked, “ I s the bill specifica lly tied to those entities that are selling liquor? I f it is not, how are you go i n g to [ audit] t he entities that don’t sell liquor? ” the Comptroller’s repr esentative answe red, “ Well, I believe w e would be on our own on that ca se.” 14 tax would i mpose on the Comptroller’s off ice, the conve nience of “joining forc es” w ith TABC for audit purposes, a

nd the logi s t i ca l difficulties in auditing se x ually oriented businesse s that are not
re g ulate d b y

TA B C. See He ari ngon Te x. H. B
. 17 51 B e fo re the Ho us e Com m. on Way s & Me a ns , 11 80th L eg ., R.S. 39-42 (Marc h 14, 2007). B eyond this discussion reg ar d ing the eff iciency and convenie nce of

combining the audit resour ces of TAB C and the Comptroller’s offic e, the leg islative his tor y of su bc ha pte r B of c ha

pte r 47 of the bu sin e ss an d c omm e rc e c od e inc lud e s n o r e fe re nc e s to the re g ulatio n o f a lc oh ol.

Reviewing the SOB ta x provisions in their statutory context, we conclude that, unlike the provision at issue in Illusions , the pre dominant purpose o f t h e S OB tax i s not to reg ulate the service of alc ohol. See 48 2 F .3 d at 30 9, 31 0 n.7 (c on c lud ingtha t st a tut e ha s p re do min ant p ur po se of re g ulating alcohol and is the ref ore content-ne utral beca

use “the text of the statute a nd its statutory context” sugg est that it “is more in the nature of a ty pical alc ohol regulation” and less in the nature of a la w suppressingspeec h). Despite the limit ation of the SOB tax burden to businesses that allow the consumption of alcohol, the SOB tax remains a content- based di ff ere ntial tax burden on protec ted s peec h, and is subject t o strict scrutiny
. See, e .g. , Arkansas W riters’ Project , 481 U.S. at 230 (stating that such tax burdens are “entire ly incompatible” with F irst Amendment).Even if we wer e to consider the SOB ta x to be content-neutra l, it would fail constituti onal 12 muster under

the i ntermediate-scr

utiny standard be cause it is not narr owly tailored to fur

ther a substantial gove rnmental intere st. See C l a r k v. Community for Creative Non-Violence , 4 68 U. S. 2 8 8 , 2 9 4 (1 9 8 4 ) ( ci t i n g United States v. O’ Brien , 391 U.S. 367, 376 (1968)). In deter mining whe ther a re striction on speec h is narrow ly tail o re d, “the va lidity

of the re g ulation depends on the r elation it b e ar s to th e o v e r a ll p r o b le m t h e g o v e r n me n t s e e k s to c o r

rec t.” W ard v . R oc k

Ag ain st R ac ism , 491 U.S. 781, 801 (1989). In the pre sent ca se, the majority of the proc eeds r esulting f rom the SOB tax are allocate d for a purpose that, while laudable, be ars no r elation to the over all problem that the State claims it is seeking to corr ect—the neg ative secondary eff ects of nude dancingwhen c ombined wi th a lc oh ol. Whil e the fi rs t $2 5 mil lio n in re ve nu e pe r bie nn ium is a llo c a te d to the se xua l a ssa ult pr og ra m f un d, the re ma ind e r— and

the va st m a

jor ity —o f t he re ve nu e i s d e d i c a te d to pr ov idi nghe a lth insurance to low-income individuals. See Tex. Bus. & Com. Code Ann. §§ 47.054-.055 (West Supp. 2008). The Comptroller prese nted no evidenc e at trial of a link be tween a lack of health insuranc e and nude dancing wher e alcohol is c onsumed. Be cause the State has imposed a tax on protected speec h and allocated only a fr action of the proce eds to combat sec ondary eff ects, ther e is “a

n inadequate nexus between the regulation a nd the interest soug ht to be serve d.” Cla rk, 468 U.S. at 29 9 n .8 ; se e als o W

ar d , 491 U.S. at 799 (“G overnme nt may not regulate ex pression i n such a ma nner that a substantial portion of the bur den on spee ch does not ser ve to adva

nce its g oals.”). 15 The Comptroller conc edes that the SOB tax cannot withstand strict scrutiny . As the tr ia l c ourt state d in its jud g me nt, “ De fe nd ants fa ile d to— and c on c e de d that th e y c ann ot— me e t th e ir burden to show that [t he tax ] is nece ssary to serve a compelling state intere st and narr owly tailored for that pur

pose.” I n light of the Comptroller’s conce ssion a nd our dete rmination that the SOB tax is a content-ba sed tax subject to strict scrutiny , we hold that the SOB tax is unconstituti onal under the Fir st Amendment. The Comptroller’s f irst issue is overruled. H aving fo u n d the SOB ta x 12 unconstitutional under the F irst Amendment, we ne ed not re ach the Comptroller’s second issue
re g ard ingKa

rp od and TE A’ s st a te c on sti tut ion a l c la ims
. Sov e re ign Imm unity

I n its thi rd issue on appea l, the Comptroller argues that TEA, as an org anization that is not subject t o the SOB tax , is barre d from bring ing suit on the ba sis of sovere ign immunity
. SeeTh e Com ptr oll e r a rgue s th a t Cal

dwe ll c on tr a dic ts t

he Te xas S up re me Court ’s de c isi on in 13 W .D. Haden Co. v. Dodgen , 308 S.W .2d 838 (Tex. 1958)
. Howeve r, in Dodgen , th e c ourt e xpre ssl y distinguished betwe en suits “to compel per formanc e of or to enforc e rig hts arising out of a c ontrac t wi t h a st at e agen cy , ” wh i ch ar e co n s i d er ed s u i t s aga i n s t t h e S t at e fo r pu rp o s es o f s o v er ei gn immun ity , a

nd su its se e kin g a

de te rm inatio n o f a

pe rs on ’s ri g hts wh e n state of fi c ia ls a c t outsi de the ir lawf ul a uth or ity , w hic h a

re no t con sid e re d suit s ag a ins t the State fo r s ov e re ig n- immun ity purp os e s. 308 S.W .2d at 840. This Court’s holding in Cal dwe ll is consistent with thi s distinction. 16 State v. Holland , 2 2 1 S
. W
. 3 d 6 3 9 , 6 4 3 (T ex . 2 0 0 7 ) ( “A b s en tan ex p re s s wa i v er o f i t s s o v er ei gn immunit y , the State is g ener ally immune from suit.”). The Comptroller asserts that TEAcannot take advanta g e of the waiver of sovere ign immunit y found in the tax-protest provisions of the tax code b e c a u s e th e s e p r o v is io n s a

p p ly o n ly to taxp ay ers. S

ee Tex. Tax Code Ann. §§ 112.052, .101 (We st 2 00 8) ; see also Ry lander v. Bandag Licensing Corp. , 1 8 S. W.3 d 2 96 , 302 (T e x. Ap p. —A us tin 20 00 , p e t. d e nie d) (“ Th e Ta x Code pr ov ide s a statut or y re me dy fo r ta xpay e rs wh o c on te nd a ta x is unlawful or ma

y not leg ally

be dema nded.”)
. Whil e the tax code doe s provide a r emedy for taxpay ers seek i n g t o challeng e the leg ality of a ta x , such a c halleng e may also be broug ht in a s u i t for de clar atory relief under the Texas Uniform Dec laratory J udg ments Act (UDJA), Tex. Civ. Prac. & Rem. Code Ann. §§ 37.001- .011 (West 2008), as TEA has done in the prese nt case
. See B andag Licensing , 18 S.W .3d at 303. This Court has held that “[a] suit seeking a dec laratory judgme nt that a state a g ent is acting pursuant to an un co n s tituti onal law is not an a ction ag ainst the State barr ed by sovere ign immunity .” Ry lan de r v . Ca ldw e ll , 23 S.W .3d 132, 136 (Tex. App.—Austin 2 0 00, no pet.). D e c l ar a t o r y- 13 judgm ent act io ns again st st ate off ici als chal len ging t he co ns ti tu ti on ali ty of a s tat ut e “do not

imp lic a te the sovere ign- immunit y

doctrine” beca

use they are not considere d “suits ag ainst the State.” Texas Natural Res. Conserva t i o n C o mm ’n v. IT-Davy , 74 S.W .3d 849, 855 (Tex. 2002). Be cause theOn a pp e a l, t he Com ptr oll e r d oe s n ot c on te st T EA ’s a sso c ia tio na l st and ingto b ri ngsu it. 14 See H unt v. W ashington Stat e Apple Adv er. Comm’n , 432 U.S. 333, 343 (1977) (r equire ments for associational standing ). Chapter 112 a lso allows tax pay ers to bringa re fund suit, see T ex . T ax C ode Ann. 15 § 112.151 (West 2008) , which is distinct from a tax-protest s u it, see id. § 112.052 (West 2008). Kar pod did not seek a r efund unde r sec tion 112.151. 17 prese nt case falls within this categ ory of ca ses for w hich the sover eig n-immunity doctrine doe s not
a pp ly , we ho ld that TE A is no t ba rr e d f ro m br ing ingsu it. The Comptroller’s third issue on a ppeal 14 is overrule d.
Attorn eys’

Fees I n it s f ou rt h is su e on

a pp eal , th e Co mpt

ro lle r a rgue s th a t K arp od

is n ot e nti tle d to attorney s’ fe es under the UDJ A because its UDJA claim i s redunda nt to the l eg al re medy

provided by the tax-protest provisions of the tax code. See T ex . T ax C o d e Ann. §§ 112.052, .101. The Com ptr oll e r c on te nd s th a t K arp od imp ro pe rl y

br ou g ht i ts UD JA c la im so le ly a s a ve hic le to o bta in
a tto rn e y s’ fe e s. See Texas State Bd. of P lumbing E xam’ rs v . Associated Plumbing-He ating-Cooling Contractors of T

ex., I nc. , 3 1 S
. W
. 3 d 7 5 0 , 7 5 3 ( T e x . A p p . — A u s t i n2 0 0 0 , p e t
. d i s m ’ d

b y a g r . ) ( “ It is an abuse of discretion
. . . to a war d attorney ’s fee s under the UDJA whe n the statute is relied upon solely as a ve hicle to re cover

attorney ’s fe es.”)
. Chapter 112 of

the tax code allows taxpay ers to see k a re turn o f taxes paid under p ro t es t, see Tex. Tax Code Ann. § 112.052, and a n injunction prohibiti ng the assessment or collection of a

tax, see id. § 112.101. I f a pa rty reque sts a decla

ration under

the UDJA that goe s 15 b e yo n d i t s r e qu e s tp ur s u an t t o t h e t a x c o d e , t h e U D J A c l a i m i s n o tc o n s i d e r e d a r e d u n d an tr e m e dy. See Stray horn v. Raythe on E-Syste ms, Inc. , 101 S.W .3d 5 5 8 , 5 7 2 (Tex. App.—Austin 2003,The trial c ourt’s judg ment decla ring the tax unconstit utional was issued on 16 Marc h 28, 2008, and the order awa rding attorney s’ fee s was issued April 11, 2008. Kar pod did not pa y the ta x und e r p ro te st o r f ile its wr itt e n p ro te st l e tte r unt il Apr il 21, 20 08 , th e date that th e fi rs t SOB tax pay

ments beca

me due. TEA, for that matter, had no acc ess to a tax-protest suit at any time during this li tigation 17 beca use it is not a taxpay er for SOB tax purposes. As a result, TEA’s claim under the UDJA is not a re dund ant r e me dy

pr e ve nti nga

n a wa rd of a tto rn e y s’ fe e s. 18 pet. denied) (distinguishing between taxpay er that “re quested a statutory interpre tation that went bey ond its request for

a tax refund,” for whic h UDJA claim w ould not be redunda nt, a nd taxpay er seekingdecla

ration that denia l of ref

und claim was unla

wful, for which UDJA claim would be redunda nt). I n addition, the issues to be deter mined in a tax-protest suit “are limit ed to those ar ising from the r easons e x presse d in the written protest a s orig inally filed.” Te x . T ax C o d e Ann. § 112.053(b) ( West 2008). At the time of trial, Ka rpod had not pa id the SOB tax under prote st or filed a w ritten protest as contemplated by section 112.053 beca use the first SOB tax pay

ments were not y et due. There fore , when Ka rpod’s UD J A claim wa s filed, the constitutionality of the SOB tax 16

wa s n ot y e t a

“ re a so n[] e xpre sse d in

the wr itt e n p ro te st” that c ou ld b e ra ise d in a ta x-pr ote st s uit
. 17 Id. The Te x as Supreme Court ha s held that taxpay ers have a c onstitut ional rig ht to obtain judicial revie w of tax liability by means of a prepay ment decla

ratory action. Se e R Com mc ’n s, In c . v . S ha rp , 875 S.W .2d 314, 317-18 (Te x . 1994) (holding t ax code provision prohibiting declaratory actions and
re qu ir ingta xpay ers to seek re lie f t hr ou g h p ro te st s uit

to b e un c on sti tut ion a l) ; see also Bandag Licensing , 1 8 S
. W
. 3 d a t 3 0 5 ( t a x c o d e p r o v i s i o n p r o h i b i t i n g aw ar d o f a t t o r n e ys ’ f e e s i nd e c l ar a t o r

yjudgme n t ac tion is “an unconstitutional barrier to acc ess to the cour

ts”). At the time Ka

rpod’s UDJA claim was filed, it had a constitutional right to a de clar atory judgme nt reg ardingits tax liability and such a

decla ration wa s not redundant to any reme dy available under the tax code . As19

a re sult, the trial court did not abuse its discre tion in awardingattorney s’ fe es under the UDJA. The Comptroller’s fourth issue is over ruled.
CO NC LU SION We affir m the trial court’ s judgme nt declar ing that subchapte r B of cha pter 47 of the business and commer ce c ode is unco n s t i t utional and per manently enjoining a ssessment and collection of the tax.

____ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ ______ Diane M. H enson, Jus tice Be fore Chief J ustice Jones, J ustices Pury ear and He nson; ConcurringOpinion by Chief J ustice Jones Dissenting O pinion by J ustice Pury ear Affir med Filed: J une 5, 2009