Stevens v. United States, 18877.

• Decision Date: 25 April 1962
• Docket Number: No. 18877.,18877.
• Citation: 302 F.2d 158
• Parties: M. S. STEVENS and wife, Margurette Stevens, Appellants, v. UNITED STATES of America, Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

302 F.2d 158 (1962)

M. S. STEVENS and wife, Margurette Stevens, Appellants, v. UNITED STATES of America, Appellee.

No. 18877.

United States Court of Appeals Fifth Circuit.

April 25, 1962.

James A. Stockard, Edward B. Winn, Lane, Savage, Counts & Winn, Dallas, Tex., for appellants.

Louis F. Oberdorfer, Asst. Atty. Gen., Michael I. Smith, Lee A. Jackson, Thomas H. McPeters, Robert N. Anderson, Attys., Dept. of Justice, Washington, D. C., W. E. Smith, Asst. U. S. Atty., Dallas, Tex., W. B. West, III, U. S. Atty., Fort Worth, Tex., for appellee.

Before BROWN, WISDOM and BELL, Circuit Judges.

WISDOM, Circuit Judge.

"The Round-Up" in Dallas, Texas, features a hill-billy band and advertises that it has "the largest dance floor in the southwest". The appellants, owners of The Round-Up, bring this refund action to recover the federal cabaret tax¹ assessed against them. Their right to a refund depends on whether The Round-Up comes within a clause exempting "a ballroom, dance hall, or other similar place where the serving or selling of food, refreshment, or merchandise is merely incidental". The United States conceded that the taxpayers were operating a dance hall. The trial judge submitted the case to the jury on two special issues. First, was "the serving or selling of refreshments or merchandise * * * merely incidental in the operation of The Round-Up, that is, the entire establishment"? The jury answered, "It was not merely incidental". Second, did the plaintiffs include the tax in the price of the refreshments and merchandise? The jury found against the taxpayers on the second issue also. The taxpayers appeal from the denial of their motions for a directed verdict, for judgment, and for judgment notwithstanding the verdict. We affirm. We do not reach the merits of the second issue, however, because we hold that The Round-Up was subject to the cabaret tax.

The starting point for a discussion of the purposes and reach² of the cabaret tax properly begins with the entertainment tax Congress enacted in World War I as part of the Revenue Act of 1917, 40 Stat. 300. This was an admissions tax on "motion picture shows, theatres, circuses, entertainments, cabarets, ball games, athletic games, etc." "The trouble was that to the cabaret no admission fee is directly charged * * * The public pays an admission price, although as Justice Holmes said, it may be disguised in the price of the article sold". Hearings and Briefs before the Committee on Finance, United States Senate, 65th Cong., 1st Sess. at 385, quoted in Geer v. Birmingham, N.D. Iowa, 1950, 88 F.Supp. 189, 196. Congress therefore imposed a tax on such portions of the charges made by cabarets, roof gardens, and similar places as could be attributed fairly to an admission charge. This admissions tax is now imposed under sections 4231(6) and 4232 (b) of the Internal Revenue Code of Code 1954, 26 U.S.C.A. §§ 4231(6) and 4232 (b). These sections were carried over without substantive change from Section 1700(e) of the Revenue Code of 1939, 26 U.S.C.A. § 1700(e).

Section 4231(6) of the Internal Revenue Code of 1954, as it stood during the period with which we are concerned, imposed a twenty per cent 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."³ Section 4232(b) provides that the term "roof garden, cabaret, or other similar place" should 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.\'"

The italicized sentence was added by a 1951 amendment to the section's predecessor, Section 1700(e) (1) of the 1939 Code, Section 404 of the Revenue Act of 1951, c. 521, 65 Stat. 452.

The taxpayers rely on the italicized sentence, contending that the receipts in the taxable period are exempt because The Round-Up was a dance hall. They argue that since The Round-Up is concededly a dance hall it is unnecessary to consider the question of whether the selling of refreshments or merchandise was incidental to the operation of The Round-Up. The basis of the argument is that the 1951 amendment set up three categories of establishments and that the "incidental" question is pertinent only to establishments falling into the third category, "other similar place". The district judge refused to accept this interpretation of the statute and instructed the jury to determine whether the serving or selling of refreshments or merchandise was incidental to the operation of The Round-Up, noting that the Government conceded the establishment to be a dance hall.

For a number of years the Commissioner has sought to collect a cabaret tax on ballrooms and dance halls where food or refreshments are served. Avalon Amusement Corporation v. United States, 7 Cir., 1948, 165 F.2d 653 was one of the first cases in which a ballroom owner contested the tax. In that case the Seventh Circuit declared that "a hall in which music for dancing is furnished to anyone of the public who is able and willing to pay the admission fee is an establishment furnishing `a public performance for profit'," and if "refreshments are sold in connection therewith" it is subject to the cabaret tax.⁴ Shortly after Avalon, a similar case arose in Iowa. Geer v. Birmingham, N.D.Iowa, 1950, 88 F.Supp. 189. After a careful examination of the legislative and administrative history of the statute and the trade meaning of the term "cabaret", the district court declined to follow the broad interpretation of the tax adopted in Avalon. The court held that a cabaret tax was inapplicable to the particular establishment involved in that suit. The Eighth Circuit followed Avalon, reversing the district court.⁵ In 1951 Congress chose to follow the district court in Geer v. Birmingham, and enacted the additional and third sentence to Section 1700(e) (1) (italicized above). The House Report on the amendment states:

"The purpose of this amendment is to make it clear that the principles set forth by the district court in the case of Geer v. Birmingham (D.C. 88 Fed.Supp. 189) are controlling in the determination of whether the establishment involved is operating as a cabaret or as a dance hall, and to avoid the broad construction placed upon the statute in the case of Avalon Amusement Corporation v. United States (7 Cir. 165 Fed.2d 653) and in the court of appeals decision reversing the decision of the district court in the Geer case (Birmingham v. Geer 8 Cir., 185 Fed.2d 82), which requires that dance halls and similar establishments be taxed as cabarets even though the serving or selling of food, refreshments, or merchandise is merely incidental." H.R.Rep. No.586, 82d Cong., 1st Sess. 126 (1951), (1951-52 Cum.Bull. 357, 448).

The direct Congressional reliance on the district court decision in Geer makes the facts and opinion in that case particularly significant. The Laramar Ballroom at Fort Dodge, Iowa, had a dance floor large enough to accommodate 2000 people and had booths and tables with a total seating capacity of 350. It was usually open on Thursday, Saturday, and Sunday evenings from 8:00 P.M. until 12:30 A.M. An orchestra provided music continuously from 8:30 P.M. until closing, with the exception of two ten-minute intermissions. It had no kitchen facilities, but sold refreshments such as soft drinks, popcorn, and peanuts at three fountain counters, charging prices equal to those generally charged at other retail outlets in the area. The Laramar Ballroom charged admission varying from fifty-five to seventy-five cents. For the year 1948 it derived 67 per cent of its gross income from the admission charges, 27 per cent from the sale of refreshments, and 6 per cent from the operation of a checkroom.

The district court considered the facts of life in the earthy world of night club entertainment. It found that ballrooms such as the Laramar represented a distinct class of establishments that differed uniformly from cabarets in several prominent characteristics.⁶ In a nutshell, and as a surprise to no one, the primary attraction of a ballroom or dance hall is dancing. The music plays continuously, or nearly so, and customers come there for the sole purpose of dancing. The owner of the Laramar testified that he did not know of a single instance where a person purchased an admission ticket and did not dance. By contrast, the opportunity to dance is only part of the attraction at a cabaret. The distinguishing feature of the cabaret is its use of the dance music or other entertainment to provide an appealing atmosphere in which the customers may sit, eat or drink, and "watch the show." The customer comes not just to dance, but also to sit and talk; and, of course, from the proprietor's side, the refreshments constitute a far greater source of his revenue than they would at a dance hall. The district court in Geer held that the tax on "cabarets" was not intended to apply to the separate category of establishments comprising "dance halls."

The difficulty of applying the tests of Geer to the instant case is that in Geer the opinion did not consider the taxability of a neither-fish-nor-fowl establishment such as The Round-Up. The lower court in Geer contrasted a model form of dance hall to a model form cabaret, and it found as a practical fact that there existed two distinct classes. It had no occasion to discuss the hybrids. For guidance on this question we look to the 1951 statute. It...