50 Cent - Flight 187 (Music)
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An action by the plaintiffs under Section 1340 of the Revised Judicial Code, 28 U.S.C.A. 1340, to recover from the defendant Collector taxes claimed to have been illegally and erroneously collected. The question involved is whether the receipts of a ballroom operated by the plaintiffs are subject to the so-called \"cabaret tax.\" Section 1700(a) (1) of the Internal Revenue Code, 26 U.S.C.A. 1700(a) (1), provides for a tax on, \"the amount paid for admission to any place, including admission by season ticket or subscription.\" Section 1650 of the Internal Revenue Code, 26 U.S.C.A. 1650, fixes the rate of this \"admissions tax\" at 1 cent for each 5 cents or major fraction thereof paid within the terms of Section 1700(a) (1), supra. Section 1700(e) of the Internal Revenue Code, 26 U.S.C.A. 1700(e), provides for a tax on, \"all amounts paid for admission, refreshment, service, or merchandise, at any roof garden, cabaret, or other similar place furnishing a public performance for profit, by or for any patron or guest who is entitled to be present during any portion of such performance. The term `roof garden, cabaret, or other similar place' shall include any room in any hotel, restaurant, hall, or other public place where music and dancing privileges or any other entertainment, except instrumental or mechanical music alone, are afforded the patrons in connection with the serving or selling of food, refreshment, or merchandise. A performance shall be regarded as being furnished for profit for purposes of this section even though the charge made for admission, refreshment, service, or merchandise is not increased by reason of the furnishing of such performance. No tax shall be applicable under subsection (a) (1) on account of an amount paid with respect to which tax is imposed under this subsection.\" Section 1650 of the Code, supra, fixes the rate of the tax under Section 1700(e) at 20 per cent.
*191 It is the claim of the defendant Collector that under the provisions of said Section 1700(e), supra, the plaintiffs are subject to the so-called \"cabaret tax\" of 20 per cent on the receipts from their ballroom. The plaintiffs contend that the establishment operated by them does not come within the provisions of said Section 1700(e), but rather should be taxed under the terms of Section 1700(a) (1), supra.
The particular tax payment which the plaintiffs seek to recover in this action is the sum of $44.90 paid by them to the defendant Collector on December 13, 1948, and based on the receipts from their ballroom for the evening of December 9, 1948. This tax was paid by the plaintiffs and was not collected by them from their patrons. The plaintiffs filed proper claim for refund of the tax in question on December 13, 1948. On March 23, 1949, the Commissioner of Internal Revenue notified the plaintiffs that their claim for refund had been disallowed. The grounds set forth in the claim for refund are the same as those relied upon in this action. Since the tax on admission charges to the plaintiffs' ballroom is approximately the same under the \"admission tax\" imposed by Section 1700 (a) (1) as under the so-called \"cabaret tax\" imposed by Section 1700(e), i. e., 20 per cent, the main controversy in this case has to do with the application of the so-called \"cabaret tax\" under Section 1700(e) to those receipts of the plaintiffs' ballroom derived from the operation of a checkroom, rental of booths, and the sale of refreshments and merchandise. So far as these particular plaintiffs are concerned the question of their tax liability or of their securing tax refunds in the amount of several thousand dollars is dependent upon the final determination of the validity or invalidity of their claim for refund in this case since plaintiffs have continued since December, 1948, to pay the tax demanded by the Collector under Section 1700(e) of the Internal Revenue Code, supra. There is also, under Section 1700(e), potential liability of the plaintiffs for taxes on similar receipts prior to December 9, 1948.
The plaintiffs are a partnership composed of husband and wife and have since 1938 operated the Laramar Ballroom at Fort Dodge, Iowa. The ballroom is operated in portions of two adjacent buildings leased by the plaintiffs. There has been no substantial change in the space in which the plaintiffs operate their ballroom or in the manner in which it has been operated during the past ten years. One of the two buildings leased by the plaintiffs, known as the Armory Building, houses the major portion of the space occupied by the plaintiffs' ballroom. It is also used by local units of the National Guard. In the building known as the Armory Building the space leased by the plaintiffs consists of a part of the basement, part of the first floor and that portion of the second floor consisting of a balcony. In the basement is located the plaintiffs' business office, a checkroom, a fountain counter, rest rooms, and three wooden benches seating 15 persons. The first floor space consists of a dance floor 58 feet by 100 feet; a lounge with a seating capacity of 43 people, and a small lobby in which is located a box office where tickets for admission to the ballroom are sold. The balcony located on the second floor overlooking the dance floor is approximately 8 feet wide and extends around the entire dance floor at a height of 10 feet. In this balcony there is a fountain counter and also 38 booths seating 152 people. The space leased by the plaintiffs in the adjacent building consists of a room 20 feet by 70 feet connected with the dance floor by two entrances. In this space there is another fountain counter and also 35 booths seating 140 people, but there is no area for dancing. On certain nights 32 additional seats are usually provided ballroom patrons by the placing of 32 steel folding chairs around the edge of the dance floor. The total seating capacity of the ballroom, including the lounge, the space in the adjacent building, and the balcony, but excluding the 32 folding chairs, is about 350 people. The dance floor itself can accommodate 2000 people. The ratio of seating capacity to dance floor capacity is thus 17 per cent.
During all the time the Laramar Ballroom has been operated by the plaintiffs, admission to the ballroom could only be *192 obtained by the purchase of a ticket at the box office located in the lobby just inside the street entrance and the presentation of such ticket to a ticket taker stationed at the door connecting the lobby with the dance floor. The purchase of an admission ticket entitled the purchaser to dance the entire evening without further charge. Such admission ticket also entitled the purchaser to use the seats in the lounge and the seats in the room in the adjacent building without further charge. The purchaser of an admission ticket could rent one of the booths in the balcony for 60 cents per evening, or could use one of those booths without additional charge until it was rented to another patron. In the year 1948 the total receipts from booth rentals amounted to approximately one-half of one per cent of the total receipts of the ballroom.
The regular established admission charge to the plaintiffs' ballroom was 55 cents for Thursday nights prior to 9:00 P.M. and 65 cents after that hour; 65 cents for Saturday nights and 75 cents for Sunday nights. These prices include the Federal admission tax under Section 1700(a) (1) of the Internal Revenue Code, supra.
The plaintiffs, from the time the ballroom opens on dance nights and until the dance music ends, have available for sale to their patrons soft drinks, peanuts, popcorn, candy, gum and cigarettes. Waitresses are available from whom these items may be ordered by patrons seated at any booth. Patrons may also purchase these items at any of the three fountain counters. Cigarettes are sold for 21 cents per pack, soft drinks at 10 cents per bottle, popcorn for 10 cents, peanuts for 5 cents per bag, candy bars for 5 cents, and gum for 5 cents. With the exception of cigarettes, which for a time were sold at 20 cents per pack, the prices charged for these refreshments and merchandise have remained constant. The prices charged for these items in the plaintiffs' ballroom are the prices usually and normally charged for such items at other retail outlets. The purchase of any of these items is entirely optional with the patron and the dancing privileges of a patron are neither added to nor subtracted from by his purchase or failure to purchase any of these items. The patrons are not permitted to purchase these items after the dance music is over for the evening. There are no menus provided in connection with the sale of these items, and no meals or sandwiches are served by the plaintiffs at any time. There are no facilities for cooking in the plaintiffs' ballroom, and they have neither silverware nor table linen. The only dishes used in the ballroom are water glasses and popcorn bowls. In the operation of their establishment the plaintiffs always represented and advertised it as a ballroom or dance hall with dancing as *193 the sole entertainment. They never represented or advertised it as a place where meals or other food was dispensed. During the year 1948 the average amount spent by a patron for the items of refreshment and merchandise referred to was 27 cents. Since 1939 a checkroom has been provided for those patrons who wish to check their wraps. A 10 cent charge is made for this service. The checking of wraps is entirely optional with the patrons. The checkroom is operated by plaintiffs' employees who are employed on a salary basis. The plaintiffs frequently rent their ballroom to organizations for dancing or convention purposes. During the year 1948 the rentals derived therefrom amounted to less than 1 per cent of the total gross receipts of plaintiffs' ballroom.
For the year 1948 the receipts from the sale of admission tickets to the ballroom constituted approximately 67 per cent of the gross income therefrom, receipts from the sale of the refreshments constituted approximately 27 per cent therefrom, and receipts from the checkroom constituted approximately 6 per cent therefrom. The word \"approximately\" is used because a fractional percentage of the gross receipts was derived from rental of the ballroom to other organizations, and from the rental of booths. 59ce067264