Rick’s Cabaret to Pay $10M in Texas ‘Pole Tax’ Case

HOUSTON — Rick’s Cabaret’s parent company announced today it has reached a settlement with the state of Texas over payment of the state’s “pole tax” on adult club customers.

To resolve the issue of taxes owed, the gentlemen’s club chain agreed to pay $10 million in equal monthly installments of $119,000 without interest over the next 84 months. Going forward, it agreed to remit the pole tax, formally called a “patron tax,” on a monthly basis, based on the current rate of $5 per customer.

Eric Langan, RCI Hospitality Holdings Inc. president and CEO, said, “We’re pleased to put another major issue of uncertainty behind us. It will result in a gain and will help us clean up our balance sheet.”

A year ago, a state appeals court ruled that Texas' $5-per-head tax on strip and gentlemen's clubs does not violate free-speech rights.

The 3rd District Court of Appeals originally affirmed a ruling that the tax violated the club owners' First Amendment rights, but it considered the case again after the Texas Supreme Court reversed and called for consideration of the remaining claims under state law.

Rick’s Cabaret stopped remitting the tax after the 3rd District first affirmed a lower court judgment that the tax, which will go to Texas sexual assault prevention programs, was unconstitutional.

Langan said Rick’s Cabaret had expensed but did not pay the tax, since the second quarter of fiscal 2009. As of March, the company’s most recent reporting period, this totaled $17.1 million in current liabilities.

The settlement covers 21 of 23 subsidiaries of the chain. Payments for the two remaining subsidiaries, for which less than $900,000 has been accrued, are currently being negotiated.

With 46 clubs, Rick’s Cabaret’s parent company, RCI Hospitality, is the country’s largest company in adult gentlemen clubs.

Adult clubs in New York City, Miami, Philadelphia, Charlotte, Dallas/Ft. Worth, Houston, Minneapolis, Indianapolis and other cities operate under brand names Rick's Cabaret, XTC, Club Onyx, Vivid Cabaret, Jaguars and Tootsie’s Cabaret. Its sports bars and restaurants operate under the brand name Bombshells.