Ross v. Hayes, 21134.

Decision Date30 October 1964
Docket NumberNo. 21134.,21134.
Citation337 F.2d 690
PartiesA. C. ROSS, as District Director of Internal Revenue for the Collection District of Georgia, Appellant, v. E. F. HAYES and I. C. Peterson, d/b/a The Covered Wagon, Appellee.
CourtU.S. Court of Appeals — Fifth Circuit

Crombie J. D. Garrett, Atty., Louis F. Oberdorfer, Asst. Atty. Gen., Lee A. Jackson, Atty., Dept. of Justice, Washington, D. C., Charles L. Goodson, U. S. Atty., Slaten Clemmons, Asst. U. S. Atty., Atlanta, Ga., Robert N. Anderson, Atty., John B. Jones, Jr., Acting Asst. Atty. Gen., Dept. of Justice, Washington, D. C., for appellant.

James R. Harper, Atlanta, Ga., for appellee.

Before BROWN and BELL, Circuit Judges, and SPEARS, District Judge.

GRIFFIN B. BELL, Circuit Judge:

Taxpayers instituted this action for refund of cabaret taxes allegedly overpaid for the third quarters of 1953 and 1957. The United States counterclaimed for cabaret taxes allegedly due for 1954-56 and the first two quarters of 1957.1 Section 4232 of the Internal Revenue Code of 1954 exempts from the cabaret tax imposed by § 4231 "any ballroom, dance hall, or other similar place where the serving or selling of food, refreshment, or merchandise is merely incidental * * *." 26 U.S.C.A. §§ 4231, 4232. The government stipulated that taxpayers' establishment was a "dance hall" within the meaning of this section, and tax liability in this case therefore turns on whether the sale of food and refreshment was "merely incidental" to the operation of a dancing establishment. The trial court submitted this question to a jury which returned a special verdict finding that the sales were merely incidental. The government appeals, contending that the evidence compelled a finding as a matter of law that the sales were not incidental, and that consequently its motion for a directed verdict should have been granted.

Taxpayers operated a dance hall open three nights a week in Atlanta, Georgia, known as The Covered Wagon. A band for square dancing was provided and refreshments were sold. The admission charge was $1.05 per person, and patrons could purchase beer, Coca Cola, Seven-Up, ice, potato chips, pretzels, crackers, peanuts, and chewing gum. No meals or sandwiches were served. In every tax quarter here involved, the income from the sale of these refreshments constituted 44.4% of the total gross income of The Covered Wagon, the balance being derived from admission fees. The evidence was conflicting as to the relative size of the dance floor, but in considering whether the trial court should have directed a verdict, we must accept as true the testimony most favorable to the taxpayers. Standard Oil Company v. Foster, 5 Cir., 1960, 280 F.2d 912. This testimony indicated that the dance hall constituted 75 to 80% of the entire area. The dance floor at The Covered Wagon could accommodate 200 to 225 persons, whereas the seating capacity of the establishment was only 160. Moreover, only 100 seats were at booths or tables; the remaining 60 were on benches alongside the dance floor. The Covered Wagon was open for business one hour before the band began to play, but during this hour, a nickelodeon was provided for dancing. Only two waitresses were employed, and they did not have time to provide prompt table service or to solicit drinks. They were principally occupied with clearing tables, and most of the customers waited on themselves.

The government contends, first, that when the relative income from refreshments is as high as 44.4%, refreshment sales are as a matter of law not merely incidental irrespective of any other factors tending to favor the taxpayers. Alternatively, the government argues that if the refreshment ratio is itself insufficient to compel a directed verdict, other factors reinforce its position that the refreshment sales were as a matter of law not incidental. We are unable to accept either contention, and hold that the lower court properly refused to direct a verdict for the government.

It is clear that the determination whether refreshment sales are incidental does not turn solely on the percentage of income attributable to such sales, but must be made with reference to the nature of the total operation of the establishment in question. As stated by this court in Stevens v. United States, 5 Cir., 302 F.2d 158, 164:

"There is no one simple test to determine when the sale of refreshments is `merely incidental.\' While the relative percentages of gross receipts is probably the most important single index, other factors must also be considered. Both the House and the Senate Reports accompanying the proposed 1951 amendment contained this statement: `This determination will be made by reference to the overall operation of the establishment, including such factors as the relative income from the several activities over a period of time, the relative portion of space devoted to the various activities, the type of refreshments served or sold, the scope and character of the entertainment furnished, and the hours of operation.\'"

There may be situations where the percentage of gross income attributable to refreshment sales will be so high...

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4 cases
  • Comptroller v. CLYDE'S
    • United States
    • Maryland Court of Appeals
    • October 15, 2003
    ...[7th Cir. 1948]....' H.R.Rep. No.586, 82d Cong. 1st Sess., 2 U.S.Code, Cong. and Admin.Serv. p.1915 (1951)." See also, Ross v. Hayes, 337 F.2d 690, 692 (5th Cir.1964)(stating that, "`the purpose of the amendment is to make clear that the principles set forth by the district court in the cas......
  • Robert Louis Stevenson Apartments, Inc. v. CIR
    • United States
    • U.S. Court of Appeals — Eighth Circuit
    • November 3, 1964
  • Shutter v. United States
    • United States
    • U.S. Court of Appeals — Seventh Circuit
    • January 27, 1969
    ...area resulted in 47% of the receipts. Plaintiffs-appellants cite Geer v. Birmingham, 88 F.Supp. 189 (N.D.Iowa 1950), and Ross v. Hayes, 337 F.2d 690 (5th Cir. 1964), as cases in point. In Geer no liquors were sold and the lounge space served only 17% of the dance floor capacity. In Ross a j......
  • Dance Town, USA, Inc. v. United States, Civ. A. No. 67-H-748.
    • United States
    • U.S. District Court — Southern District of Texas
    • September 4, 1970
    ...allocated 75% of its space to the sale of food and refreshments. Both Shutter and the case at bar are distinguishable from Ross v. Hayes, 337 F.2d 690 (5th Cir. 1964), where the court allowed the jury to determine the "merely incidental" issue. In Ross, sales accounted for 44% of revenue, b......

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