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Content-Based Tax Exemptions and the First Amendment

By Stanley R. Kaminski and David I. Curkovic
August 17, 2009
State Tax Notes

Content-Based Tax Exemptions and the First Amendment

By Stanley R. Kaminski and David I. Curkovic
August 17, 2009
State Tax Notes

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Reversing the holding of the Illinois Appellate Court, the Illinois Supreme Court recently held in Pooh-Bah Enterprises, Inc. v. County of Cook that a content-based tax exemption that discriminates between some forms of dance based on their erotic or sexual content does not violate the First Amendment of the U.S. Constitution.1

While generally acknowledging that tax and regulatory laws that discriminate based on content were subject to strict scrutiny under the First Amendment, in Pooh-Bah the Illinois Supreme Court concluded that a tax exemption was the equivalent of a government subsidy and that content-based subsidies based on public policy were permitted under the First Amendment. The court's rationale was based in part on its determination that when the government implemented a program that fostered the "fine arts," it was permitted to make reasonable content-based distinctions. Further, the court found that the discrimination in the tax exemption scheme was between different types of dance performances—those at adult entertainment cabarets (exotic dancing) versus other dancing—and thus was not content-based discrimination because exotic dancing is different from "fine arts" dancing. (Notably, the court did not explain what types of dancing—other than exotic dancing—would not be considered "fine arts" dancing.)

The Illinois Supreme Court's decision is the first in the United States that has withdrawn First Amendment protection for content-based tax discrimination. While the court's analysis and holding may well be questionable law, this Illinois decision now opens the issue of whether future content-based laws will be upheld if a government subsidy or government policy angle can be asserted.

Past Established Case Law on Content-Based Tax/Regulatory Laws

Before reviewing the Illinois Supreme Court's recent decision, it is worth revisiting the U.S. Supreme Court's well-settled jurisprudence, as stated in Arkansas Writers' Project, Inc. v. Ragland, that discrimination "on the Basis of the content of the message cannot be tolerated under the First Amendment."2 Content-based discrimination is a form of censorship, as Justice William O. Douglas warned in Southeastern Promotions, Ltd. v. Conrad3:

As soon as municipal officials are permitted to pick and choose, as they are in all existing socialist regimes, between those productions which are "clean and healthful and culturally uplifting" in content and those which are not, the path is cleared for a regime of censorship under which full voice can be given only to those views which meet the approval of the powers that be.

The preeminent U.S. Supreme Court case on content-based tax exemptions is Arkansas Writers' Project. In that matter, Arkansas exempted from its 4 percent sales tax some publications that were "religious, professional, trade and sports journals."4 "General interest" magazines, however, were excluded from the exemption and thus subject to the Arkansas sales tax.5 Arkansas Writers' Project, which published the Arkansas Times (a general interest magazine), challenged the constitutionality of the Arkansas sales tax exemption scheme. Arkansas first claimed that the Arkansas Times did not come under the tax exemption because it was not a religious, professional, trade, or sports journal,6 and defended the constitutionality of its tax exemption scheme as an "economic regulation" that was only "nominally" imposed on receipts from sales of all tangible personal property.7

Disagreeing with Arkansas, the Court saw the Arkansas sales tax scheme as a "disturbing use of selective taxation."8 The Court equated the tax to a regulation on speech and pointedly observed that under the Arkansas tax exemption scheme "a magazine's tax status depends entirely on its content."9 Because content discrimination is presumptively prohibited under both the free speech and press provisions of the First Amendment (both at issue in the case), the U.S. Supreme Court applied a strict scrutiny test to the Arkansas tax exemption scheme, requiring the state to show that the taxing scheme was "necessary to serve a compelling state interest and is narrowly drawn to achieve that end."10 The Court then summarily rejected Arkansas's proffered justifications as failing to meet this strict scrutiny requirement, after having made it clear that "the First Amendment means that government has no power to restrict expression because of its message, its ideas, its subject matter or its content."11 See also Speiser v. Randall12 ("to deny an exemption to claimants who engage in certain forms of speech is in effect to penalize them for such speech.") and Minneapolis Star & Tribune Co. v. Minnesota Commissioner of Revenue13 (taxes that require the review of the content of speech or expression to determine their application are subject to strict scrutiny review under the First Amendment of the United States Constitution).

Later U.S. Supreme Court decisions have reiterated the dangers pointed out in Arkansas Writers' Project. In Leathers v. Medlock,14 the Court emphasized the coercive nature of a speaker-based tax, explaining that a "tax scheme that targets a small number of speakers" creates "the danger of censorship" and that a tax that discriminates based on the content of the taxpayers' speech raises the "danger of suppressing particular ideas." Similarly, the inherent nature of a tax on speech to suppress speech was reiterated in 2002 in Los Angeles v. Alameda Books, Inc. by Justice Anthony Kennedy, who explained that "a city may not regulate the secondary effects of speech by 'suppressing' the speech itself. A city may not, for example, impose a content based fee or tax."15

Also, the Court has explained that although the government may subsidize one activity to the exclusion of another, if the government discriminates based on the ideas or viewpoints expressed (as opposed to non-message-based criteria, such as the "quality" of performance, or a non-content-based criteria), the subsidy will have to survive strict scrutiny. In National Endowment for the Arts v. Finley,16 the U.S. Supreme Court upheld a grant program that considered some decency and respect standards in determining which art projects would receive government subsidies, finding that the law was not facially unconstitutional because "it did not place conditions on grants or preclude awards to projects that might be deemed indecent or disrespectful."17 The Court added that if the law was applied so as to discriminate based on "certain ideas or viewpoints," strict scrutiny would be required.18 Moreover, the Court also emphasized that any type of content-based discrimination is prohibited if direct regulation of speech or a criminal penalty were at stake.19 See also Hannegan v. Esquire, Inc.20 (discrimination in mail subsidies between sexual oriented magazines and other types of magazines based on its artistic value violates the First Amendment); Legal Services Corp. v. Velazquez21 (striking down a selective "subsidy" to facilitate the legal representation of indigents); but see Davenport v. Washington Education Ass'n.22 (stating generally that content-based distinctions are allowed when government subsidies speech).

Similarly, the U.S. Supreme Court has consistently instructed that government-imposed fees or financial incentives (or disincentives) demand strict scrutiny when based on "content." See, for example, Forsyth County v. The Nationalist Movement23 (content-based parade permit fee was unconstitutional); Simon & Schuster, Inc. v. Members of the New York State Crime Victims Board24 (financial disincentive on some expressive works was unconstitutional); City of Ladue v. Gilleo25; see also Vermont Society of Association Executives v. Milne26(lobbying tax was unconstitutional); and Sullivan v. City of Augusta27 (content-based parade bond was unconstitutional). As the U.S. Supreme Court said in Simon & Schuster, "a statute is presumptively inconsistent with the First Amendment if it imposes a financial burden on speakers because of the content of their speech."28

The Supreme Court has also made it absolutely clear that protected expressive content encompasses almost all adult-oriented expressive performance and entertainment, including exotic nude dancing, exotic semiclothed dancing, adult television programming, and other types of adult entertainment. See, for example, City of Erie v. Pap's A.M. TDBA "Kandyland"29 (nude dancing has First Amendment Protection); and United States v. Playboy Entm't Group, Inc.30 (regulation of adult cable television subject to "strict scrutiny" First Amendment review). Consistent with the above, special fees imposed on adult entertainment have been held to be prohibited under the First Amendment. See Acorn Investments, Inc. v. City of Seattle31 (First Amendment held to prohibit selective taxes on adult panorama operations); AAK, Inc. v. City of Woonsocket32 (selective municipal license-for-revenue scheme on "adult cabarets" was held unconstitutional). Even recently, the Texas Appellate Court held in Combs v. Texas Entertainment Association, Inc.33 that a tax on sexually oriented businesses was a content-based tax subject to strict scrutiny and unconstitutional under the First Amendment.

The Pooh-Bah Matter

Background and Relevant Facts

The Chicago amusement tax has been in existence in one form or another since the 1950s, while the Cook County amusement tax was enacted in 1997 (together, the amusement taxes).34 In 1999 Cook County and Chicago amended their amusement taxes to exempt "live theatrical, live musical or other live cultural performances," in establishments seating 750 persons or fewer (commonly referred to as a "small venue").35 That exemption was then amended in April 1999 to make it clear that those exempt performances included live performances in "disciplines" commonly regarded as part of the fine arts, such as live theater, music, opera, drama, comedy, ballet, modern or traditional dance, and book and poetry readings. Notably, a 2006 revenue ruling by Chicago explained the broad coverage of that exemption when it instructed that even disc jockey performances qualified for the exemption.36

As part of the April 1999 amendment, the City Council excluded from the tax exemption scheme "performances at adult entertainment cabarets." An adult entertainment cabaret is defined in the applicable Chicago and Cook County law to include "any" establishment that features topless dancers, strippers, male or female impersonators, or entertainers that display "specific anatomical areas" (for example, portions of their buttocks or female breasts).37 As a result of that exclusion, exotic dancing and similar performances became selectively taxable, and the presentation of those performances without paying the amusement tax became illegal.

Pooh-Bah Enterprises Inc. (Pooh-Bah) operated an establishment under the licensed name Crazy Horse Two in Chicago and Cook County. It featured live performances of exotic dancing to an audience in a small venue (that is, it had a maximum seating capacity of fewer than 750 persons). Pooh-Bah charged an admission fee to patrons to view those performances. At the establishment, female entertainers performed exotic dance routines choreographed by the dancers, which involved special lighting, music, and some costumes. Although not topless or nude during the dance performances, the entertainers arguably displayed some "specified anatomical areas" as defined by the applicable Chicago and Cook County laws. Hence, Pooh-Bah was categorized by Chicago and Cook County as an adult entertainment cabaret for purposes of the amusement taxes.

Pooh-Bah paid the amusement taxes under protest and filed claims for refund with Cook County and Chicago. In September 2001, Pooh-Bah filed its complaint for declaratory judgment and permanent injunction challenging the Cook County amusement tax as content-based in violation of the First Amendment of the U.S. Constitution, both on its face and as applied. It also argued that the tax was vague and overbroad in violation of the First Amendment since the tax exemption scheme discriminated against a whole range of legal performances, or alternatively, was unclear who it covered, and further gave officials of the county the power to arbitrarily decide who would be taxed. (The action was later amended to challenge Chicago's amusement tax on the same bases as the Cook County amusement tax and further to challenge the tax exemption scheme under the Illinois Constitution's uniformity clause.) Chicago and Cook County moved to dismiss the action.

The trial court ruled in favor of Cook County and Chicago on their initial motion to dismiss and again on Pooh-Bah's motion for reconsideration. The trial court's decision was that the tax exemption scheme did not violate the First Amendment because it was not based on adult content (that is, the exotic dancing) but was based on the nature of the establishment—namely, it being an adult entertainment cabaret. But in doing so, the trial court carefully sidestepped that exotic dancing was only legally allowed at establishments classified as adult entertainment cabarets and that the presence of exotic dancing transformed a small venue into an adult entertainment cabaret under the law. Even more notable was the trial court's decision issued two years later on the uniformity clause issue,38 because the later ruling appeared to contradict its earlier ruling on the First Amendment by finding that the rational basis justifying the distinction between taxing adult entertainment cabarets and not other small venues was that "nudity" or "adult entertainment" (that is, exotic dancing) occurred at adult entertainment cabarets. In other words, the trial court found that the content of the performance justified the discrimination.

The Appellate Court Decision

Pooh-Bah raised the same issues it asserted in the trial court; the appellate court needed only to reach the First Amendment issue.39 The city and county initially argued to the appellate court that the tax exemption scheme did not violate the First Amendment because it was "not enacted with the purpose of discriminating against any particular expression."40 They claimed instead that it was enacted to encourage small-venue fine arts performances so as to enhance the city and county's reputation in the fine arts and therefore the tax exemption scheme was content-neutral.

The appellate court disagreed. Quoting well-established law, the court cited Ward v. Rock Against Racism41 and People v. Jones42: "A regulation is content-neutral so long as it is 'justified without reference to the content of the regulated speech.'"43 "Content-based regulations are presumptively invalid (citation omitted) and will be upheld only if necessary to serve a compelling government interest and narrowly drawn to achieve that end (citation omitted)."44 As to the county and city's claim that they did not purposefully intend to discriminate based on content, the court found that argument to be irrelevant.45 Citing U.S. Supreme Court decisions directly on this point, such as Simon & Schuster, Inc.,46 the appellate court stated "illicit legislative intent is not the sine qua non of a violation of the First Amendment."47 Therefore, the appellate court rejected the city and county's assertion that purpose should control whether the tax exemption scheme at issue was content-neutral.

Looking at the tax exemption scheme as a whole, and reading the operative terms together, the appellate court found that the tax exemption scheme on its face excluded seminaked exotic performance art or expression. As explained by the court, "one cannot determine whether the operative criteria of the adult entertainment cabaret exclusions apply to a particular small venue without considering the content of the small venue's featured speech or expressive conduct."48 Also, the appellate court concluded that it could find no compelling state interest that necessitated the content-based exclusion in the tax exemption scheme. The court also distinguished the decisions relied upon by defendants, holding that Regan v. Taxation with Representation of Washington,49 Rust v. Sullivan,50 and Finley51 "do not establish that the government can encourage one private speaker over another based on content or message without implicating First Amendment concerns."52 While noting that Cook County and Chicago may have a legitimate interest in enhancing their reputation in the fine arts, that did not rise to a level of a "compelling state interest that will justify, under the First Amendment, a content-based restriction on protected expression."53

Accordingly, the appellate court reversed the trial court's decision and held that the tax exemption scheme violated the First Amendment. The appellate court found no need to address the other constitutional claims (that is, the vagueness, overbroad, free speech, and uniformity claims) given its holding. The city and county then appealed.

Illinois Supreme Court Decision

To start its analysis, the Illinois Supreme Court first considered which line of First Amendment cases applied to the facts of Pooh-Bah: cases involving differential taxation based on content or the line of cases allowing the government to subsidize one activity to the exclusion of another.54 After an analysis of these lines of cases, the court addressed "two preliminary matters."55

First, citing Regan,56 the court stated that "the [U.S.] Supreme Court quite clearly said that tax exemptions can be considered to be subsidies that are administered through the tax system."57 In essence, the court relied solely on a statement in Regan that said "that tax exemptions are a 'form of subsidy that is administered through the tax system,' having 'much the same effect as a cash grant to the organization of the amount of tax it would have to pay on its income.'"58 In doing so, the Illinois Supreme Court was not concerned by a footnote in Regan explaining that "in stating that exemptions and deductions, on the one hand, are like cash subsidies, on the other, we of course do not mean to assert that they are in all respects identical."59 The Illinois Supreme Court also was not persuaded by the holdings of the U.S. Supreme Court in Walz v. Tax Comm'n of the City of New York60 (First Amendment Establishment Clause case) and Camps Newfound/Owatonna, Inc. v. Town of Harrison61 (Commerce Clause case), which both held that tax exemptions and subsidies differ in important constitutional respects.

Thus, after concluding the tax exemptions can be the same as subsidies, the Illinois Supreme Court relied on a statement by Justice Antonin Scalia in Davenport62 that also cited Regan,63 "for the proposition that it is 'well established that the government can make content-based distinctions when it subsidizes speech.'"64 The Illinois Supreme Court did not look beyond Justice Scalia's general statement, and thus did not address the fact that Regan nowhere held (either in the majority or concurrence opinions) that content-based subsidies are allowed under the First Amendment. Rather, Regan actually held that the tax exemption in that case was not based on "the content of any speech."65

Second, the Illinois Supreme Court held that the applicability of the tax exemption scheme did not turn on whether there is any nudity or partial nudity in a production. Instead, applying the principles of ejusdem generis, the court found that the definitions of "adult entertainment cabarets" in the defendants' zoning ordinances—which were defined to include establishments that featured entertainers who display specified anatomical areas—would preclude application of the definition to theaters showing productions such as Hair in which the actors appeared naked.66 As the court explained:

Thus, the phrase ["other entertainers"] does not mean "any entertainer," but "entertainers like strippers, topless dancers, or male or female impersonators." Actors who appear naked or partially naked in fine arts productions would clearly not fall within the scope of the County's ordinance. (Id. at 492.)

With those matters dealt with in the court's mind, the Illinois Supreme Court turned to the constitutionality of the tax exemption scheme itself. The court first determined that the matter was appropriately analyzed under the line of cases considering government subsidies of one activity to the exclusion of another, citing Regan, Rust, and Finley as examples. The court concluded that those subsidy cases along with the recent Davenport decision allowed it to conclude that the government can make content-based distinctions when it subsidizes speech. The court did not address that, unlike the Arkansas Writers' Project, none of these cases considered a content-based exclusion from a tax exemption like the tax exemption scheme before the court.

The Illinois Supreme Court explained that the tax exemption scheme in the amusement taxes was not an attempt to regulate adult entertainment but instead these taxes were "generally applicable taxes applying to a broad range of amusements, with some involving protected speech and some not."67 The court then listed other types of entertainment media as examples of different types of entertainment that did not qualify for the live (fine arts) entertainment exemption. The court rationalized:

Here, all that has happened is that defendants have enacted a government program believed to be in the public interest—encouraging fine arts performances in small venues—and have defined the program in such a way that will achieve its ends. Defendants have chosen to accomplish this goal by subsidizing live fine arts performances in small venues, and they are entitled to define the parameters of that program in a way that will accomplish their goals. Because the goal is to encourage live fine arts performances in small venues, it is perfectly logical for defendants to exclude categories of protected speech that will not advance its goals, e.g., movies, television, promotional shows, performances at adult entertainment cabarets, and performances in venues that seat more than 750 persons. (Id. at 497.)68

As the court further explained, "defendants were entitled to make reasonable content-based distinctions in creating a program to subsidize the fine arts, and, as stated above, they clearly have done so."69 As a result, the court dismissed Pooh-Bah's argument that it was within the tax exemption but then discriminated against because of the content of its performances, noting that the dance performances at Pooh-Bah's establishment did not "fall within the definitions of either 'modern or traditional dance' or 'other live cultural performances.'"70 However, the court did not explain why exotic or sexually suggestive dance is not a type of artistic dance performance. Nor did the court explain what type of dance would be artistic dance or why that distinction is not content-based.

That same type of reasoning (that is, "it's different") was echoed in the Court's attempt to distinguish the holding of the U.S. Supreme Court in Arkansas Writers' Project. First, the Illinois Supreme Court noted that Arkansas Writers' Project "involved the press"71 but did not mention that the U.S. Supreme Court in that case analyzed the tax exemption scheme under both the Free Speech and Press Clauses of the First Amendment. The Illinois Supreme Court further noted that in Arkansas Writers' Project the state taxed magazines differently based on their content, but that "the [United States Supreme] Court did not reach the argument of whether it was permissible to tax magazines and newspapers differently."72The Illinois Supreme Court said that:

the amusement tax ordinances do not discriminate based on the content of performances at small fine arts venues. If that were the case, this would be more like the situation that the Court found problematic in Arkansas Writers [sic] Project. For the reasons set forth above, however, adult entertainment cabarets are not presenting works that are a subset of defendants' program. They are presenting an entirely different type of entertainment. Thus, denying adult entertainment cabarets an exemption reserved for small fine arts venues is as reasonable as denying cable television subscribers an exemption reserved for purchasers of magazines and newspapers. Neither situation offends the first amendment.73

In other words, the court held that the tax exemption scheme was not content-based discrimination since exotic dancing is an "entirely different type of entertainment" from fine arts dancing.

While the phrase "small fine arts venues" apparently was important to its analysis, the Illinois Supreme Court left out of its decision what it meant by the phrase—undefined and unused in the city or county tax laws—which peppered its opinion.74 The court also did not address the fact that an adult entertainment cabaret qualifies as a small venue (that is, live entertainment establishment with fewer than 750 seats) that presents exotic or sexually oriented dance. Nor did the court address that the difference it cited between exotic dance and other types of dance performances appears to be based entirely on the content of the dance performance, and not based on some non-content-based factor like the example it used between magazines and newspapers (that is, different content within a medium as opposed to different types of media).

Nevertheless, based on its analysis, the Illinois Supreme Court found that Pooh-Bah's First Amendment claims failed to state claims on which relief could be granted, and remanded to the appellate court for consideration of the remaining claims.

Analysis of the Illinois Supreme Court Decision

In reaching its conclusion that the First Amendment did not prohibit the city or county from passing a content-based tax exemption scheme, the Illinois Supreme Court made several surprising findings, after having to sidestep a few inconvenient facts and U.S. Supreme Court decisions.

The first small hurdle for the Illinois Supreme Court was reversing the unanimous and concise decision by the Illinois Appellate Court that struck down the tax exemption scheme. The appellate court made that ruling without oral argument, presumably because it believed the law was so clear cut that oral argument was not needed. The appellate court concluded that, based on long-standing established precedent, the city and county tax exemption scheme violated the First Amendment.75 The Illinois Supreme Court overcame that hurdle by simply ignoring the appellate court's reasoning altogether.

The next hurdle by the Illinois Supreme Court was the simple problem of getting around a plethora of the U.S. Supreme Court cases that had consistently and historically held that content-based laws violate the First Amendment unless there is a compelling state interest for the discrimination. See, for example, Forsythe County v. The Nationalist Movement76; U.S. v. National Treasury Employees Union77; Madsen v. Women's Health Centers Inc.78; FCC Turner Broadcasting Systems, Inc. v. FCC79; Playboy Entm't80; Hannegan81; and Simon and Schuster, Inc.82 The U.S. Supreme Court had also uniformly applied that same First Amendment prohibition to content-based tax exemptions in Arkansas Writers' Project, Leathers, and Speiser. Even direct subsidies had been subject to strict scrutiny when the content of the speech or expression (its views or message)83 was the basis of the subsidy, as the U.S. Supreme Court held in Finley, Rosenberger, Velasquez, and Hannegan.

To distinguish the reasoning of the above cases, the Illinois Supreme Court adopted an unusual type of hybrid reasoning, mixing the case law surrounding government speech (that is, the government as the speaker) and those cases concerning subsidies to private speech. In doing so, and by discarding the striking difference between the cases, the court found solace in the government speech cases that allowed government to subsidize its own speech based on content under a "government program" (for example, Rust, supra).

The Illinois Supreme Court then made the crucial decision to hinge its decision on the seemingly inconsequential statement by the Regan court in which it stated generally that tax exemptions are "a form of subsidy that is administered through the tax system."84 It therefore tied the fate of the tax exemption scheme to the subsidy cases it previously cited. Yet, in doing so, the court disregarded the fact that the U.S. Supreme Court in Arkansas Writers' Project equated a tax exemption scheme (similar to the one at issue in Pooh-Bah) to a regulation of speech, other than some type of simple subsidy as suggested by the dissent in that case.85 The Illinois Supreme Court also distinguished two U.S. Supreme Court decisions—Camps Newfound/Owatonna, Inc. and Walz—that held that when discrimination is at issue, there is a significant constitutional difference between a subsidy and a tax exemption. By doing so, the Illinois Supreme Court remarkably concluded that the First Amendment Free Speech Clause provides less protection from tax discrimination than the First Amendment Establishment Clause or the Commerce Clause.

Once the Illinois Supreme Court decided that the tax exemption scheme was a subsidy, it relied heavily on the statement by Justice Scalia in Davenport that Regan stood for the proposition that subsidies can be content-based.86 But, as previously pointed out, the Regan Court did not make this statement and actually stood for the opposite conclusion.87 Moreover, a simple review of other U.S. Supreme Court decisions citing and relying on Regan plainly demonstrates that the U.S. Supreme Court in Regan did not authorize content-based subsidies. See Turner Broadcasting Systems, Inc. v. FCC88 (citing Regan for authority and explaining that "Speaker-based laws demand strict scrutiny when they reflect the Government's preference for the substance of what the favored speakers have to say (or aversion to what the disfavored speakers have to say)."); and Rosenberger v. Rector and Visitors of the Univ. of Virginia89 ("Regan relied on a distinction based on a preferential treatment of certain speakers—veterans organizations—and not a distinction based on the content or messages of those groups."). Therefore, it is unclear what exactly Justice Scalia meant when he cited Regan as the basis of his generalized statement, thus raising the obvious question whether the Illinois Supreme Court in Pooh-Bah should have looked into this issue more closely.

Similarly, it is also significant that the Illinois Supreme Court's conclusion that a tax exemption was merely a subsidy ignores the basic fact that, unlike a simple subsidy, the tax exemption scheme directly "regulated" the amusement operator, requiring the collection, accounting for, and payment of the tax by the operator. Also, it subjected the operator and patrons to criminal penalties for noncompliance and provided for the closure of the operator's business.90 By ignoring those realities, the Illinois Supreme Court was able to ignore the U.S. Supreme Court's instruction in Finley that, unlike simple subsidies, content-based laws that directly regulate speech or impose criminal penalties on the speaker are plainly subject to strict scrutiny.91

Other significant findings by the Illinois Supreme Court were its conclusions that exotic dancing at adult entertainment cabarets are different from the type of fine arts dancing that would qualify for the exemption; and it is not content-based to distinguish between fine arts dancing and exotic dancing because they are different. It is difficult to understand the Illinois Supreme Court's reasoning because the term "fine arts" as used in the amusement taxes was merely descriptive of the types of "disciplines" that qualified as live entertainment (that is, disciplines such as comedy, dance, poetry, etc.). Moreover, it is commonly accepted that "fine art" is simply "art that is concerned primarily with the creation of beautiful objects: art for which aesthetic purposes are primary or uppermost" or "any art . . . for which aesthetic purposes are primary or uppermost."92 Therefore, because modern or traditional dance is a discipline under the fine arts, it is listed as live entertainment that qualifies for the exemption. Significantly, neither the quality nor type of dance is a relevant factor under the amusement taxes. Quite the contrary, Chicago has acknowledged that even DJ performances qualified for the exemption, demonstrating again the breadth of the exemption.93

As the U.S. Supreme Court held in Hannegan, "what is good art varies with individuals as it does from one generation to another."94 Likewise, it is indisputable that exotic dancing has been part of Western culture for thousands of years. As Justice Richard Posner of the U.S. Court of Appeals for the Seventh Circuit explained in Miller v. Civil City of South Bend, "public performances of exotic dancers debuted in western culture in the satyr of the ancient Greeks" and has continued in various forms since then.95 Notably, in the 1930s Sally Rand was one of the most well-known artistic dancers in Cook County because of her exotic dancing. As a result, it is hard to comprehend how exotic dancing would not qualify as a type of modern or traditional dance. See, for example, In the Matter of the Petition of 677 New Loudon Corp96 (held that exotic dancing at an adult entertainment cabaret qualified for a dramatic or musical arts performance exemption).

Therefore, despite the Illinois Supreme Court's declaration that exotic dancing is a different type of modern or traditional dance, that difference seems to be based purely on the content of the performance. Again, the only difference between taxable exotic dancing and nontaxable other dancing, according to the city and county tax ordinances, is the amount of clothing or explicit sexual content performed in the dance. As a result, the Illinois Supreme Court's statement that the exemption is not content-based raises more issues than it answers.


The Illinois Supreme Court's Pooh-Bah decision breaks new ground in First Amendment jurisprudence. Even though the ruling leaves open a number of questions, it does make it clear that in Illinois the First Amendment no longer prohibits content-based tax exemption schemes that have some basis in public policy. While Pooh-Bah appears to conflict with 60 years of U.S. Supreme Court precedent, as well as creates more than a slippery slope for allowing future restrictions on First Amendment expression, much will depend on whether the U.S. Supreme Court ultimately agrees (in reviewing this decision or elsewhere) with the Illinois Supreme Court.

Interestingly, the Illinois Supreme Court's reasoning in Pooh-Bah looks almost identical to Justice Scalia's dissent written over 20 years ago in Arkansas Writers' Project. In that 1987 case, Justice Scalia disagreed with the seven justices in the majority opinion that a content-based tax exemption scheme violated the First Amendment. Justice Scalia believed, just as the Illinois Supreme Court does now, that the First Amendment does not prohibit content-based discrimination in the subsidy or taxation area when it comes to most expressive conduct or speech.97

While Justice Scalia's limited application of the First Amendment regarding content-based taxation has never been followed by the U.S. Supreme Court, Pooh-Bah sets up the fight again to see whether the current U.S. Supreme Court will knock some teeth out of the First Amendment or continue applying long-standing First Amendment precedent, thus leaving the protective bite of the First Amendment untouched.


  1. Pooh-Bah Enterprises, Inc. v. County of Cook, 232 Ill. 2d 463, 905 N.E.2d 781 (2009), reversing and remanding Pooh-Bah Enterprises, Inc. v. County of Cook, 378 Ill. App. 3d 268, 881 N.E.2d 552 (1st Dist. 2007). A petition for writ of certiorari was recently filed with the U.S. Supreme Court by Pooh-Bah Enterprises Inc. (For the Illinois Supreme Court decision, see Doc 2009-6312 or 2009 STT 53-8; for the appellate court decision, see Doc 2007-28334 or 2008 STT 1-5.)
  2. 481 U.S. 221, 230 (1987).
  3. 420 U.S. 546, 564 (1975) (Douglas, J., concurring and dissenting)).
  4. 481 U.S. at 224-227.
  5. Id.
  6. 481 U.S. at 224-225.
  7. 481 U.S. at 228-229.
  8. 481 U.S. at 229.
  9. Id.
  10. 481 U.S. at 231.
  11. 481 U.S. at 230.
  12. 357 U.S. 513, 518 (1958).
  13. 460 U.S. 575 (1983).
  14. 499 U.S. 439, 446-453 (1991).
  15. 535 U.S. 425, 444 (2002) (Kennedy, J., concurring) (emphasis added).
  16. 524 U.S. 569 (1998).
  17. Id. at 581-583.
  18. Id.
  19. Id. at 587-588.
  20. 327 U.S. 146 (1946).
  21. 531 U.S. 533 (2001).
  22. 551 U.S. 177 (2007).
  23. 505 U.S. 123 (1992).
  24. 502 U.S. 105 (1991).
  25. 512 U.S. 43 (1994).
  26. 779 R.2d 20 (Vt. 2001).
  27. 310 F. Supp. 2d 348 (D. Me. 2004).
  28. Id. at 115.
  29. 529 U.S. 277, 301 (2000).
  30. 529 U.S. 803, 814 (2000).
  31. 887 F.2d 219 (9th Cir. 1989).
  32. 830 F. Supp. 99 (Dis. Ct. R.I. 1993).
  33. No. 03-08-00213-CV, 2009 Texas App. LEXIS 3880 (Texas App., June 5, 2009).
  34. Chicago Mun. Code, Ch. 4-156; Cook County Code, sec. 74-390.
  35. Chicago Mun. Code, Sec. 4-156-020(D)(1); Cook County Amusement Tax, sec. 3D.
  36. Chicago Dep't of Revenue Amusement Tax Ruling #4 (eff. Dec. 1, 2006).
  37. Chicago Mun. Code, Sec. 16-16-030; Cook County Zoning Ord., Art. 14.2.1.
  38. Under the Illinois uniformity clause, only a rational basis is needed for tax discrimination. Arangold Corp. v. Zehnder, 204 Ill. 2d 142, 147, 787 N.E.2d 786 (2003). (For the decision, see Doc 2003-7463 or 2003 STT 59-14.)
  39. 378 Ill. App. 3d 268.
  40. Id. at 274.
  41. 491 U.S. 781, 791 (1989).
  42. 188 Ill. 2d 352 (1999).
  43. Id.
  44. Id. at 275.
  45. Id.
  46. 502 U.S. 105, 117 (1991).
  47. Id.
  48. 378 Ill. App. 3d at 276.
  49. 461 U.S. 540, 76 L. Ed. 2d 129, 103 S. Ct. 1997 (1983).
  50. 500 U.S. 173, 114 L. Ed. 2d 233, 111 S. Ct. 1759 (1991).
  51. 524 U.S. 569 (1998).
  52. 378 Ill. App. 3d at 277.
  53. Id. at 279.
  54. 232 Ill. 2d at 475.
  55. Id. at 490.
  56. 461 U.S. at 544.
  57. Id. at 491.
  58. Id. (quoting Regan, 461 U.S. at 544).
  59. Regan, 461 U.S. at 544 n. 5.
  60. 397 U.S. 664, 674-675 (1970).
  61. 520 U.S. 564, 589-590 (1997).
  62. 551 U.S. at 188-189.
  63. 461 U.S. at 548-550.
  64. 232 Ill. 2d at 491 (quoting Davenport, 551 U.S. at 188-189).
  65. 461 U.S. at 548.
  66. Id. at 492-494.
  67. Id. at 494 (emphasis in original).
  68. The Illinois Supreme Court failed to explain how any of the items in this list—other than performances at adult entertainment cabarets—were relevant to the discrimination issue before the court, since the other categories of entertainment (movies, television, promotional shows, and performances in venues that seat more than 750 persons) would by definition not occur at a small live entertainment venue.
  69. Id.
  70. Id. at 499.
  71. Id. at 500.
  72. Id. (emphasis supplied).
  73. Id. (emphasis supplied).
  74. See, e.g., 232 Ill. 2d at 498 ("the difference between adult entertainment cabarets and small fine arts venues might be 'format' or 'activity' rather than content.").
  75. 378 Ill. App. 3d 268.
  76. 505 U.S. 123 (1992).
  77. 513 U.S. 454 (1995).
  78. 512 U.S. 753 (1994).
  79. 512 U.S. 622 (1994).
  80. Supra note 30.
  81. Supra note 20.
  82. Supra note 24.
  83. In some instances, the "quality" of the expression can be a criterion when a regulation or criminal penalty is not involved. Finley, 524 U.S. 569.
  84. 461 U.S. at 544.
  85. 481 U.S. at 231.
  86. 232 Ill. 2d at 491.
  87. Regan, 461 U.S. at 548.
  88. 512 U.S. 622, 658 (1994).
  89. 515 U.S. 819 (1995).
  90. See e.g., Chicago Mun. Code, Ch. 4-156 - 010 et seq.; Ch. 3-4-010 et seq.; Ch. 4-4-010 et seq.
  91. 524 U.S. at 587-588.
  92. Webster's Third New Int'l Dictionary, p. 852 (2002).
  93. Chicago Dep't of Revenue Amusement Tax Ruling #4 (eff. Dec. 1, 2006).
  94. 327 U.S. at 157 (the Court striking down most of a subsidy that tried to discriminate based on the artistic value of the different magazines).
  95. 904 F.2d 1081, 1089-1090 (7th Cir. 1990) (J. Posner, concurring), rev'd on other grounds, 501 U.S. 560 (1991).
  96. DTA No. 821458 (N.Y. Div. of Tax App., Mar. 12, 2009).
  97. 481 U.S. at 236.