TITLE 34. PUBLIC FINANCE
PART 1. COMPTROLLER OF PUBLIC ACCOUNTS
CHAPTER 3. TAX ADMINISTRATION
SUBCHAPTER
CC.
The Comptroller of Public Accounts proposes amendments to §3.722, concerning the sexually oriented business fee. The comptroller amends this section to implement the decision in Tex. Entm't Ass'n, Inc. v. Hegar, 10 F.4th 495 (5th Cir. 2021) and to implement House Bill 3345, 88th Legislature, 2023.
The comptroller amends the definition of clothing in subsection (a)(1), to remove the provision that was deemed unconstitutional in the Texas Entertainment Association, Inc. case.
The comptroller amends subsection (d)(1) and (2), and increases the fee imposed on a sexually oriented business to $10 for each entry by each customer admitted to the business, as provided in House Bill 3345.
The comptroller also replaces the term "return" with "report" for consistent usage throughout the section.
Tetyana Melnyk, Director of Revenue Estimating Division, has determined that during the first five years that the proposed amended rule is in effect, the rule: will not create or eliminate a government program; will not require the creation or elimination of employee positions; will not require an increase or decrease in future legislative appropriations to the agency; will not require an increase or decrease in fees paid to the agency; will not create a new regulation, expand an existing regulation, limit an existing regulation, or repeal an existing regulation; will not increase or decrease the number of individuals subject to the rule's applicability; and will not positively or adversely affect this state's economy.
Ms. Melnyk also has determined that the proposed amended rule would have no significant fiscal impact on the state government, units of local government, or individuals. The proposed amended rule would benefit the public by conforming the rule to current statute and comptroller practice while removing language found to be unconstitutional. There would be no significant economic cost to the public. The proposed amended rule would have no significant fiscal impact on small businesses, micro-businesses or rural communities.
You may submit comments on the proposal to Jenny Burleson, Director, Tax Policy Division, P.O. Box 13528 Austin, Texas 78711 or to the email address: tp.rule.comments@cpa.texas.gov. The comptroller must receive your comments no later than 30 days from the date of publication of the proposal in the Texas Register.
The comptroller proposes the amendments under Tax Code, §111.002 (Comptroller's Rules; Compliance; Forfeiture) and §111.0022 (Application to Other Laws Administered by Comptroller) which provide the comptroller with authority to prescribe, adopt, and enforce rules relating to the administration and enforcement provisions of Tax Code, Title 2, and taxes, fees, or other charges which the comptroller administers under other law.
The amendments to this section implement Business and Commerce Code, §102.051 (Definitions).
§
3.722.
(a) Definitions. The following words and terms, when used in this section, shall have the following meanings, unless the context clearly indicates otherwise.
(1) Clothing--A garment used to cover the body, or a part of the body, typically consisting of cloth or a cloth-like material. [Paint, latex, wax, gel, foam, film, coatings, and other substances applied to the body in a liquid or semi-liquid state are not clothing.]
(2) Customer--Any person on the premises of a sexually oriented business except:
(A) an owner, operator, independent contractor of the business or an employee of that sexually oriented business; or
(B) a person who is on the premises exclusively for repair or maintenance of the premises or for the delivery of goods to the premises.
(3) Nude--To be entirely unclothed, or clothed in a manner that leaves uncovered or visible through less than fully opaque clothing any portion of the breasts below the top of the areola of the breasts, if the person is female, or any portion of the genitals or buttocks.
(4) Sexually oriented business--A nightclub, bar, restaurant, or similar commercial enterprise that:
(A) provides for an audience of two or more individuals live nude entertainment or live nude performances; and
(B) authorizes on-premises consumption of alcoholic beverages, regardless of whether the consumption of alcoholic beverages is under a license or permit issued under the Alcoholic Beverage Code.
(b) Clothing requirements. An entertainer or performer will be considered "nude" for purposes of this section unless the entertainer or performer wears fully opaque clothing that covers all portions of the genitals and buttocks, and if the entertainer or performer is a female, the entertainer or performer must also wear fully opaque clothing that covers the portions of the breasts below the top of the areola of the breasts.
(c) Questionnaire. A sexually oriented business, as defined in this section, is required to complete and submit a Texas Sexually Oriented Business Fee Questionnaire, Form AP-225 or a subsequent form prescribed by the comptroller to file the report and remit the fee imposed under Business and Commerce Code, Chapter 102 (Sexually Oriented Businesses).
(d) Imposition and Calculation of Fee.
(1) Effective September 1, 2023, a $10.00 [A $5.00] fee is imposed on a sexually oriented business for each entry by each customer admitted to the business. In determining the amount of fee due by a sexually oriented business for more than one entry by the same customer on the same business day at the same location, it shall be presumed to have been one entry by the customer and the fee amount due from the business for the entry is $10.00 [$5.00]. A business day begins when the business opens and continues until the close of business. Prior to September 1, 2023, the fee is $5.00.
(2) A sexually oriented business has the discretion to determine how it will derive the money to pay the fee. All door and cover charges, including reimbursement of the sexually oriented business fee from its customers, are subject to sales tax as provided by Tax Code, Chapter 151 (Limited Sales, Excise and Use Tax). A sexually oriented business that chooses to recover the fee from its customer by including a separately stated charge for the fee on the customer check or invoice must clearly identify the charge as a reimbursement. A charge not clearly identified as reimbursement of the fee is considered a tax collected from the customer and these amounts must be remitted to the comptroller in addition to the $10.00 [$5.00 entry] fee.
(3) The comptroller will presume that a business is a sexually oriented business if the business holds itself out as a sexually oriented business. Evidence that the comptroller may consider includes signage, advertising, social media, publication of images, inspections, investigations, and the reputation of the business. To rebut the presumption, a business may prove by a preponderance of the evidence the instances in which the business did not operate as a sexually oriented business.
(e) Report forms. The sexually oriented business fee must be reported on a form as prescribed by the comptroller. The fact that the sexually oriented business does not receive the form or does not receive the correct form from the comptroller for the filing of the report [return] does not relieve the business of the responsibility of filing a report [return] and remitting the fee.
(f) Due date of report and payment.
(1) The sexually oriented business fee report and payment are due no later than the 20th day of the month following the calendar quarter month in which the liability for the fee is incurred.
(2) A sexually oriented business must file a quarterly report even if there is no fee to report.
(g) Penalty. Penalties due on delinquent fees and reports shall be imposed as provided by Tax Code, §111.061 (Penalty on Delinquent Tax or Tax Reports).
(h) Interest. Interest due on delinquent fees shall be imposed as provided by Tax Code, §111.060 (Interest on Delinquent Tax).
(i) Records required.
(1) A sexually oriented business is required to maintain records, statements, books, or accounts necessary to determine the amount of fee for which the business is liable to pay.
(2) A sexually oriented business shall record daily the number of customers admitted to the business. The manner in which a sexually oriented business maintains records of the number of customers admitted to the business may be written, stored on data processing equipment, or may be in any form that the comptroller may readily examine.
(3) The comptroller or an authorized representative has the right to examine any records or equipment of any person liable for the fee in order to verify the accuracy of any report made or to determine the fee liability in the event no report [return] is filed.
(4) Records required by the comptroller must be kept for at least four years after the date on which the records are prepared, and throughout any period in which any tax, fee, penalty, or interest may be assessed, collected, or refunded by the comptroller or in which an administrative hearing or judicial proceedings is pending, unless the comptroller authorizes in writing a shorter retention period. A business must make records available for inspection and audit on request by the comptroller.
(j) Failure to keep accurate records. If a sexually oriented business fails to keep accurate records of the number of customers admitted to the business, the comptroller may estimate the amount of fee liability based on any available information that includes, but is not limited to, any reports required to be filed per Tax Code, Chapter 151, Chapter 171 (Franchise Tax), or Chapter 183 (Mixed Beverage Taxes).
The agency certifies that legal counsel has reviewed the proposal and found it to be within the state agency's legal authority to adopt.
Filed with the Office of the Secretary of State on June 23, 2025.
TRD-202502098
Jenny Burleson
Director, Tax Policy
Comptroller of Public Accounts
Earliest possible date of adoption: August 3, 2025
For further information, please call: (512) 475-2220