Comptroller v. CLYDE'S, 11

Decision Date15 October 2003
Docket NumberNo. 11,11
CourtMaryland Court of Appeals

Brian L. Oliner, Asst. Atty. Gen. (J. Joseph Curran, Jr., Atty. Gen., on brief), Baltimore, for petitioner.

Linda M. Schuett, County Atty., Annapolis, Thurman W. Zollicoffer, Jr., City Solicitor, Baltimore, David A. Plymyer, Deputy County Atty., Annapolis, Edward J. Gilliss, County Atty., Towson, Kimberly A. Millender, County Atty., Westminster, Charles W. Thompson, Jr., County Atty., Rockville, A. Frank Craven, III, County Atty., Bel Air, Brief of Amicus Curiae Anne Arundel County, Baltimore City, Baltimore County, Carroll County, Harford County and Montgomery County for petitioner.

K. Donald Proctor (K. Donald Proctor, P.A., Towson; Thomas B. Stone, Jr., Law Office of Thomas B. Stone, Jr., Rockville), all on brief, for respondents.



This case arises out of an admissions and amusement tax sought to be levied by the Comptroller of the Treasury, petitioner, against two restaurants, Clyde's of Chevy Chase, Inc. (Chevy Chase) and Clyde's of Columbia, Inc. (Columbia).1 Clyde's received a hearing before a hearing officer on December 8, 1999 to determine the validity of the assessment. On May 5, 2000, the hearing officer upheld petitioner's assessment and respondent appealed to the Maryland Tax Court. After a November 1, 2000 hearing, the Tax Court issued a written order on November 29, 2000 reversing the hearing officer and denying petitioner's admissions and amusement tax assessment against respondent.

Petitioner sought judicial review in the Circuit Court for Baltimore City and on August 23, 2001, a hearing was held in front of the Honorable Clifton Gordy. Judge Gordy upheld the Tax Court's decision in an order dated October 2, 2001. Petitioner appealed that decision to the Court of Special Appeals. In an unreported opinion filed on January 7, 2003, that court upheld the Tax Court's decision in favor of respondent.2

Petitioner then filed a Petition for Writ of Certiorari with this Court, and, on May 7, 2003, we granted the petition. Comptroller of the Treasury v. Clyde's of Chevy Chase, Inc., 374 Md. 358, 822 A.2d 1224 (2003). Petitioner presents one question for our review:

"Did the lower courts erroneously hold that the gross receipts that are derived from the sale of refreshments and that pay for entertainment at a restaurant are not subject to the State's admissions and amusement tax because the refreshments are not sold `in connection with entertainment' within the meaning of ? 4-101(b)(1)(v) of the Tax General Article?"

We answer the question in the negative and hold that ? 4-101(b)(1)(v) requires a direct financial nexus between the sale of refreshments and entertainment provided by the establishment. Under the specific facts of the case sub judice, where the restaurant providing the music charged no cover or admissions charge, required no minimum purchase by its patrons during periods of live music and did not inflate its refreshments' prices during the playing of the live music, the Tax Court's determination that the refreshment sales were not "in connection with" the entertainment is correct. Accordingly, we affirm the judgment of the Court of Special Appeals.

I. Facts

Clyde's Restaurant Group3 (Clyde's) operates the two Maryland restaurants involved in the dispute in the case sub judice. One restaurant is located in Chevy Chase while the other is located in Columbia.

A. Clyde's of Chevy Chase, Inc.

The Chevy Chase location, which opened in 1995, is a two-floor restaurant comprising of around 16,000 square feet. The main dining area is located at street level just inside the primary entrance. This area is a nonsmoking area that accommodates 298 customers. The bar area, known as the Race Bar due to its classic auto racing theme,4 is located one floor below street level. The Race Bar, where smoking was permitted, contains a hardwood floor section with an oval bar in the center of the room with approximately 80 to 90 bar stools surrounding it. Encircling the bar is a carpeted section with 120 booths for dining. At the end of the room is a raised stage/display area which is approximately six feet deep. Musicians hired by Clyde's perform in this stage area on certain nights.

To enhance the restaurant's ambiance, increase revenue, expand patronage, and maintain a varied atmosphere in the Race Bar area, the Chevy Chase location provides music. Three nights per week the music is live in the Race Bar. The restaurant provides background music played through a cable music system at lunch and on the remaining nights of the week. The type of music played is dependent on the night of the week and occasion. The cable system generally plays easy-listening and background music.5 On Friday nights, a traditionally busy night for restaurants, the restaurant hires a disc jockey to play CDs in the Race Bar.6 The manager specifies the general type of music to be played, but the disc jockey decides the specific songs to be played. Testimony revealed that the music played on Friday nights tended to be played at a much higher volume than that of the cable music system. On Saturday nights, a "three to five piece group" plays an upbeat style of music.7 The final night of live music consists of either a Wednesday night easy-listening duo or a Thursday night jazz duo or trio. All musicians play on the stage area.

The restaurant announces the musical performances on the back of the restaurant's menu and on the restaurant's web site. "[F]ree unsolicited listings in local newspapers," including, but not limited to, the Washington Post, the Burtonsville Gazette and the Germantown Gazette are also made (alteration added).8 These publications list the names of the performers and the date and time of the performances. The restaurant does not encourage dancing. There is no dance floor in the Chevy Chase location, although, occasionally, patrons will spontaneously dance in the restaurant.

The restaurant does not impose any admission fee or cover charge when it provides live entertainment. It similarly does not increase the prices of any food or drinks, nor does it require any minimum purchase in order for a patron to be present for the live entertainment. A person could be present for the entertainment without purchasing any product or service from the restaurant. Musicians, or the disc jockey (DJ), are paid out of the till at the end of the night regardless of the amount of sales from food or beverages.

The prices at the Clyde's restaurant in Chevy Chase are competitive with the prices of similar local establishments. Competition with other local restaurants and overhead costs, including the cost of food, drinks, utilities, payroll, supplies, menus and music, drive the restaurant's price setting. The restaurant considers all of these factors, compares them with what the market can bear, and accordingly determines the prices for its food and beverages.

B. Clyde's of Columbia, Inc.

The Columbia restaurant is a one-floor establishment located in the Columbia Town Center. The restaurant can accommodate about 320 for dinner and the bar has approximately 40 bar stools. This restaurant has a cable music system similar to that of the Chevy Chase location for the purpose of providing background music to enhance the atmosphere and dining experience. Thursday night is the only night the Columbia location provides other music. This usually consists of one or two acoustical guitarists playing contemporary music from 9:30 p.m. until 12:30 a.m. Customers generally may request songs to be played. No location for dancing is provided and dancing is not encouraged.

Similar to the Chevy Chase location, the Columbia restaurant does not charge an admissions or cover charge, raise its prices or require any minimum purchase on Thursday evenings when the musicians play. Its prices are competitive in relation to the other local restaurants. The performers are paid in a similar manner to the entertainers in the Chevy Chase location. If there is not enough cash in the cash drawer to pay the performers, funds are taken from stored cash in the main office. There are no local publications that regularly announce the Columbia restaurant's entertainment. The restaurant only announces its live music on the restaurant's menu board. The general manager of the Columbia restaurant testified that the percentage and rate of sales for food and beverages at the Columbia location do not differ between the nights when live music is offered and the nights when it is not offered.9

C. The Comptroller's Audit and Assessment

The Comptroller's audit revealed that the proprietor of the Chevy Chase location had not regularly collected or remitted the admissions and amusement tax10 on sales of refreshments (food and beverage) made in the Race Bar of the restaurant during the periods when the restaurant provided live entertainment. During the audit, the Comptroller reviewed the sales records for a sample week chosen by the restaurant and then somehow made a determination of the percentage ratio of the sales made in the Race Bar when live music or the services of a DJ were provided, to the total refreshment sales for that week. To arrive at the total amount of admissions and amusement tax it alleged was due for the assessment period, this percentage was then multiplied by the Chevy Chase location's total annual gross sales for the assessment period. From this an assessment was made and a total tax due amount determined. The amount in admissions and amusement tax already paid by the Chevy Chase proprietor was then subtracted from the total tax alleged to be due to arrive at the claimed deficiency. On October 27, 1999, the Comptroller alleged a total tax due from Clyde's of Chevy Chase, Inc. in the...

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