Industry Reacts to Proposed Tax on Adult Internet

Matt O'Conner
WASHINGTON — After an initial period of shocked silence regarding the proposed 25 percent federal tax on adult Internet transactions, the industry is speaking out on the issue.

On Wednesday morning, Sen. Blanche Lincoln, D-Ark., announced that she, along with a slew of fellow Democrats, had authored legislation that would impose a 25 percent excise tax for all adult transactions. Rep. Jim Matheson, D-Utah, introduced a version of the bill in the House on Wednesday.

Whereas webmaster boards rapidly caught fire after the publication of major stories such as ICANN’s decision to move forward on .XXX and the Justice Department’s 2257 record-keeping regulations, Lincoln’s announcement seemed to pass under the radar while people processed just how far-reaching its impact on the industry could be.

But now adult professionals from all aspects of the industry are weighing in on the possibility of a “sin tax,” and those XBiz spoke with are united in their opinion that the 25 percent figure is excessive and that the industry is being used as a political pawn.

Is Fighting Child Porn Really the Aim?

As with 2257, which the Justice Department claims is aimed at eliminating child pornography, Lincoln cited child protection as justification for the tax. Specifically, she said a portion of revenue raised from taxes would fund anti-child pornography programs.

While Clint Works, president and CEO of Sensational Video, said he supports any and all efforts to stamp out child pornography, he believes the tax is less about protecting children than it is about doing harm to the adult companies.

“Just like 2257, there is an endless account of things that are meant to discourage people from entering the business or make it impossible for little guys to compete,” Works told XBiz. “If they’re going to tax us, they should be fair about it; the amount they tax should be comparable to any other industry.”

“We’re an easy target,” Joe Gallant, president of Black Mirror Production, added. “They think they can get away with this because everybody is running scared. [Bush’s] second term is about getting a pathologically far-right agenda in place as quickly and quietly as possible.”

Joan Irvine, executive director of the Association of Sites Advocating Child Protection, pointed out that the vast majority — 99.9 percent — of online child pornography can be traced back to nonadult, non-U.S. websites, so any claims that a sin tax would help rid the Internet of child pornography are misguided.

“The leaders of the adult entertainment industry are already funding the battle against child pornography by joining the ASACP,” Irvine said.

XRentDVD General Manager Vincent Sorvino added that adoption of the tax might give parents a false sense of security regarding what their children view online.

This tax will only encourage adult content providers to move their operation overseas where regulations on content are more lax or nonexistent,” Sorvino said. “So the children whom this bill proposes to protect will now be exposed to as much, if not more, hardcore and explicit images from websites originating offshore.”

Hidden Agenda

Given the high percentage Lincoln is proposing, some industry professionals suspect the tax is being used as backdoor method to break the back of the industry, in case the courts reject 2257.

“I think anyone with common sense, outside of the Bible Belt, can clearly see what this is really meant to do: punish anyone involved in the purchase, use or distribution of adult material,” Jean-Marie Kesch of JMK Video told XBiz.

Comments from one of the senators co-sponsoring the bill seem to support such assertions.

"I think we've given them plenty of time and plenty of chances to clean up their act, and they haven’t done it" Sen. Mark Pryor, D-Ark, said. "And my impression is they're not going to do it. There's too much money at stake."

Michael Sinclair, president of Voodoo Media Group, said he believes politicians are striking while the industry is “legislatively burned out” due to fighting the Justice Department over 2257.

He also said he sees a political chess match at play, wherein Democrats are attempting to widen their political base at the expense of the adult entertainment industry.

“You can see some of the same rhetoric in [Hillary] Clinton’s stance on the video gaming industry,” Michael Sinclair, president of Voodoo Media Group, said. “The Democrats are trying to appeal to moderate conservatives, who have been looking for them to take a moral stance [against porn].”

Tax Could Work, If Reasonable

Despite his reservations regarding the motivations of the bill’s sponsors, Sinclair said he is not opposed to a sin tax in general because it could help to legitimize the industry, but thinks 25 percent is simply unreasonable.

It’s a sentiment shared by many in the industry, including Ed Dooge, owner/operator of the Lotzadollars affiliate program. “Right now, the government doesn’t charge any tax on membership, so you might be able to argue that some tax might be fair, but 25 percent is ridiculous,” Dooge said.

“It’s absurd,” agreed AEBN Director of Advertising Bishop. “The federal government isn’t taxing anything else on the Internet, and now they want to tax us 25 percent?”

While no one seems enthusiastic about handing over 25 percent of their sales revenue to Uncle Sam, some believe the passage of a tax on adult Internet products could have a positive outcome.

“I think the proposed tax is a cloud with a very silver lining,” Todd Spaits, president and CEO of Stripe Media, parent company of YanksCash, said. “Although I hate the thought of raising membership dues for our patrons, a tax would be a big step in legitimizing the industry in the eyes of the government.”

Spaits added that he believes subscription rates could go as high as $50 a month without making a dent in sales. AEBN’s Bishop also thinks the industry could survive price increases to make up for the tax.

“A tax isn’t going to make our product go away,” Bishop told XBiz. “The government taxes the hell out of booze and cigarettes, and those industries are still going strong. As long as people want our product — and people will always want our product — we’ll still be here.”