RECOMMENDATION 31

Part: 
Three
Chapter: 
2

State and Local revenue authorities must insure taxes are collected from businesses dealing in obscene materials.

"Adults Only" pornographic outlets often maintain separate business systems for accounting purposes. These operations may be in the form of a "front room" and a "back room."[300] The front room is usually where books, magazines, films, videos, and sexual devices are sold. The individual running the business usually keeps fairly accurate financial records for this part of the operation because revenues from it are used to pay rent, utilities, and employees' wages as well as purchase merchandise .[301]

The "back room" usually contains peep show booths or video machines which earn substantial profits-often twice that which the "front room" earns. These "back room" earnings are typically excluded from any financial records of the business and can easily go untaxed.[302] While this Commission does not condone the operation of pornography businesses it urges state and local revenue authorities to strictly scrutinize the reporting methods of these businesses and insure that the proper income is reported and subject to taxation.

Notes

  1. New York Hearing, Vol. II, William Johnson, p. 72-73.
  2. Id., p. 72.
  3. Id., p. 72.