PARAMOUNT DEFEATS UNCONSTITUTIONAL TEXAS LAW
I mentioned earlier in the story that we produced three test shows at the Paramount to determine if Austin would embrace the Paramount as an historic performing arts center. What I did not say is that a bizarre situation followed that third show that could have killed the question to save and restore the Paramount in its tracks.
At some time in the middle of these test shows I started to wonder if we were liable for any tax on tickets sold. Producers are cursed with perpetually looking for anything that might derail a show. I can’t tell you how many times I awoke in the middle of the night with some big question mark hanging in the dark. I did some investigation. Lo and behold, I found a state law on the books that did indeed indicate that we were, in fact, liable for collecting and paying tax on tickets sold. However, the wording of the law was exceedingly strange.
This law, in essence, said the following: A regularly established motion picture theatre must pay tax on ticket sales. However, a non-motion picture theatre (like an auditorium) does not have to pay tax on ticket sales. I read it several times because I knew something was not right with this law. Why would a theatre like the Paramount have to pay a tax on tickets when a municipal auditorium, performing arts center, arena or stadium did not have to pay this tax? So, we hired a lawyer named James Keahey to try and get this law declared unconstitutional.
I believe this law was enacted to tax movies but not live events. The Paramount had been a mostly a movie house from the early 1950’s. Live entertainment had virtually stopped in the late 1940’s. Movies were cheaper to exhibit whereas live shows with big name entertainment were expensive and risky. Also, you could show movies several times a day. There wasn’t enough live entertainment touring acts to fill the theatre even 25% of the days of the year. Consequently, movies grossed more money many times over than live shows. More movie income – more state taxes. That is a guess on my part. I don’t know that anyone is still around who could shed light on the “why” of this strange law.
Our lawyer began to look in to this law. He was sure it was unconstitutional. To us, this could be a deal killer. The tax would have been around 8% of our gross ticket sales which would offset any profit margin. Also, a movie theatre paid the tax whether or not the theatre made or lost money on a given show. We would never have been able to continue with live entertainment and that would have been the end of resurrecting the Paramount as a performing arts center.
However, there was another twist with mammoth repercussions. It turns out that our lawyer approached all the movie theatre chains in Texas who were potentially affected by this law. I can’t even guess how many movie theatres there were in Texas in 1975. But that’s not all. As a part of having the state declare this law unconstitutional, the state had to roll back the law to the 1940’s if memory serves. That meant that these movie theatre chains received many millions of dollars in taxes paid over those 30+ years. They saved millions more while the law was being re-written to fix the inconsistencies.
The Paramount received $2,000 in returned taxes for those three test shows. Our attorney retired on that one lawsuit. I have no idea how much he made but I’m sure it was a percentage of all taxes recouped by the movie theatre chains. To my knowledge, he never made a donation to the Paramount nor was he a season subscriber.
Some years later after this law was declared unconstitutional, the State of Texas ultimately wrote a new law covering taxes on ticket sales which exists to this day. It is also impossible to know what the Paramount saved in taxes on ticket sales during the time this law was being re-written. I’m sure we saved chicken feed compared to the windfall enjoyed by the movie theatre exhibition industry in Texas on the strength of our original lawsuit.
