CARSON CITY, Nevada (Reuters) – Nevada lawmakers on Thursday defeated a proposed prostitution tax that had won support from brothel owners and working ladies willing to do their part to ease the state’s $3 billion budget crisis.

Nevada, one of only two U.S. states that allow some prostitution, is reeling from a deep economic recession that has led to high numbers of foreclosures, dwindling tourism revenues and a gaping budget shortfall.

State Senator Bob Coffin, a Democrat, proposed levying a $5-per-customer service tax on patrons of some 20 legal brothels operating in rural Nevada, all of them outside Las Vegas and surrounding Clark County, where prostitution remains outlawed.

But a sharply divided Nevada state Senate committee voted 4-3 Thursday to kill the tax, which Coffin said would have raised an estimated $2 million a year.

Bordellos, which go by such names as the Moonlite Bunny Ranch, the Chicken Ranch and the Shady Lady Ranch, already are taxed by local governments. Brothels and their prostitutes also pay an annual $100 licensing fee each to the state.

“It’s time for an increase,” Coffin said. “The leadership of the legislature has been saying for many months that everything was on the table as far as money revenue, so I decided to take them up on it and bring this forward.”

Coffin said similar proposals never went very far in the past due to opposition from legislators who felt that taxing prostitution would further legitimize an industry they regard as distasteful and morally bankrupt.

George Flint, chief lobbyist for the state’s prostitution industry as head of the Nevada Brothel Association, called the proposed tax a kind of “insurance policy” against future efforts by the state to end legalized brothels.

Flint testified in favor of the bill earlier this week along with several working ladies.

Nevada’s brothels also have reportedly been hit hard by the U.S. recession. They attract about 365,000 customers a year, according to the Los Angeles Times.

(Written by Steve Gorman; Edited by Mary Milliken and Paul Simao)