Dance Town, USA, Inc. v. United States, Civ. A. No. 67-H-748.

• Citation: 319 F. Supp. 634
• Decision Date: 04 September 1970
• Docket Number: Civ. A. No. 67-H-748.
• Parties: DANCE TOWN, U. S. A., INC., v. UNITED STATES of America.
• Court: United States District Courts. 5th Circuit. United States District Courts. 5th Circuit. Southern District of Texas

319 F. Supp. 634

DANCE TOWN, U. S. A., INC., v. UNITED STATES of America.

Civ. A. No. 67-H-748.

United States District Court, S. D. Texas, Houston Division.

September 4, 1970.

D. R. Bernard, Bernard & Bernard, Houston, Tex., for plaintiff.

Anthony Farris, U. S. Atty., George Pain, Asst. U. S. Atty., Houston, Tex., Myron C. Baum, D. Wendell Barnett, Dept. of Justice, Washington, D. C., for defendant.

FINAL JUDGMENT

SEALS, District Judge.

Plaintiff, Dancetown, U.S.A., brings this action to recover the sum of $15,536.84 which it paid to the Internal Revenue Service as federal cabaret taxes for the third and fourth calendar quarters of 1963 and the first, second and third calendar quarters of 1964. The Government has filed a counterclaim to recover the sum of $15,875.49, the amount of cabaret taxes, penalties and interest allegedly due but unpaid for all quarters of 1964 and the first and second quarters of 1965. The Commissioner of Internal Revenue assessed the tax after determining that plaintiff, a commercial ballroom, fell under the definition of "cabaret" set forth in 26 U.S.C. § 4232:

"(b) Roof garden, cabaret or other similar place — The term "roof garden, cabaret, or other similar place," as used in this chapter 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. In no case shall such term include any ballroom, dance hall, or other similar place where the serving or selling of food, refreshment, or merchandise is merely incidental, unless such place would be considered, without the application of the preceding sentence, as a `roof garden, cabaret, or other similar place'";

and, as such, was liable for the 10% excise tax imposed on cabarets by virtue of 26 U.S.C. § 4231. Plaintiff avers that, in accordance with the exception granted by § 4232, its selling of food and refreshment was "merely incidental;" Plaintiff's claim for refund, as well as the Government's counterclaim for the amount unpaid and overdue, must therefore turn on the question of whether or not Dancetown operated an establishment where the selling of food and refreshments was "merely incidental."

The Fifth Circuit has explained what is comprehended within the rubric of "merely incidental." Nonliability for the tax requires a showing that

"the sale of refreshments plays only a supporting role in the entertainment operation; when it assumes importance as a significant attraction for its own sake it is not `merely incidental.' * * * The test is whether the sale of refreshments is subordinate. When such sale becomes important in its own right as a significant part of the attraction of the establishment, the exemption from the cabaret tax will not apply." Stevens v. United States, 302 F.2d 158, 163-164 (5th Cir. 1962).

The principal factor to be considered is the source of the revenue. Billen v. United States, 273 F.2d 667 (10th Cir. 1960).

In the case at bar, 45.1% of plaintiff's total income during this period derived from the sale of food and refreshments and 54.9% from admissions. In Kantor v. United States, 154 F.Supp. 58 (N.D.Tex.1956), a district court in this State held that where receipts from the sale of refreshments are approximately 40% of total revenue, such receipts are not "merely incidental." Similar rulings have followed in cases where the sale of refreshments accounted for 47.11% of the total. Landau v. Riddell, 255 F.2d 252 (9th Cir. 1958), and 50%, Billen v. United...