At or before 3:00 A.M. each day the singer went off duty and
the entertainment thereafter consisted solely of non-taxable
instrumental music, which latter type of entertainment continued
The only type of taxable entertainment presented by the
plaintiff for the benefit of its customers in the Cloverleaf Bar
was a vocalist between the hours of midnight and 3:00 A.M.
The Celebrity Room was open to the public, as stated above,
only on Saturday night — this for the purpose of permitting
dances on the premises. A singer was also sometimes engaged from
about midnight to approximately 3:00 A.M. The only type of
taxable entertainment presented by plaintiff in the Celebrity
Room was dancing from midnight to 3:00 A.M. each Saturday night,
and on occasion a vocalist was also employed during the same
It is not disputed that the plaintiff was subject to payment of
cabaret taxes during the period of 12:00 midnight and 3:00 A.M.
daily in the Cloverleaf Bar and between 12:00 midnight and 3:00
A.M. on Saturday nights in the Celebrity Room.
The dispute as to the amount of tax due and payable arises out
of the plaintiff's sales and service prior to midnight and after
3:00 A.M. to closing.
Plaintiff paid the required tax for sales and service between
midnight and 3:00 A.M., which amount is not in dispute.
Thereafter, the defendant through its agents assessed a deficient
cabaret tax on 33 1/3 per cent of the amount of the total sales
made in the Cloverleaf Bar and Celebrity Room from 8:00 P.M.
until the start of taxable entertainment, usually at midnight.
This deficiency was assessed by the defendant based on the
assertion of the defendant's agents that an estimated one-third
of the persons who attended the Cloverleaf Bar and the Celebrity
Room between 8:00 P.M. and 12:00 o'clock midnight also stayed
for, and were entitled to participate in, the taxable
entertainment which commenced at midnight. A deficiency
assessment was also made on 50 per cent of the amount of the
total sales made in the Cloverleaf Bar and the Celebrity Room
from the end of the period of taxable entertainment until closing
time. This assessment was made on the basis that an estimated
one-half of the customers present and served during this period
were also present and entitled to view the taxable entertainment,
at least in part, during the hours of 12:00 midnight and 3:00
Plaintiff objected to the deficiency assessment but later was
officially advised of the agents' report and thereafter received
a bill for the deficiency. Plaintiff then prepared and filed its
claim for abatement and its protest which was disallowed.
Thereafter, plaintiff paid the deficiency together with interest
and within the required period of time filed its claim for refund
as above indicated. The claim was disallowed and this suit was
In order to determine the amount of sales, plaintiff had
established a system whereby it could determine the amount of
sales during the period of 8:00 P.M. to midnight, midnight to
3:00 A.M. or the termination of taxable entertainment, and from
3:00 A.M. to closing.
At the trial the parties stipulated "That there is no dispute
between the parties as to the amount of cabaret tax which the
taxpayer paid upon receipts recorded during the period in which
the taxpayer furnished entertainment, usually midnight until 3:00
A.M.; that the taxpayer paid the cabaret tax upon such receipts,
and is not suing for recovery of such sum".
The tax here in controversy was imposed up to December 31,
1954, under the provisions of Section 1700(e) of the Internal
Revenue Code of 1939 and on and after January 1, 1955, under the
provisions of Section 4231 of the Internal Revenue Code of 1954.
These sections of the Internal Revenue Code provide for the
payment of a tax equivalent to 20 per cent of all amounts paid
for admission, refreshment, service or merchandise at any roof
garden, cabaret, or other similar place furnishing a public
for profit, by or for any patron or guest who is entitled to be
present during any portion of such performance. The two sections
insofar as they are pertinent to this case are identical.
Section 4231, Internal Revenue Code of 1954 provides in
pertinent parts as follows:
"(6) Cabarets. — A tax equivalent to 20 percent of
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 tax imposed under this paragraph shall be
returned and paid by the person receiving such
payments. No tax shall be applicable under paragraph
(1) or (2) on account of an amount paid with respect
to which tax is imposed under this paragraph."
Section 4232(b) of the 1954 Code, 26 U.S.C.A. § 4232(b),
provides as follows:
"(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'."
There was no admission charge made to the patrons of the
Cloverleaf Bar or the Celebrity Room during any of the periods of
time here involved. The only question to be determined is whether
the sales made prior and subsequent to the period of taxable
entertainment were properly taxed under the provisions of the tax
code above set out.