United States District Court, Eastern District of Illinois
April 9, 1959
CLARENCE MORTON, D/B/A WHIRL A WAY NITE CLUB, PLAINTIFF,
H.J. WHITE, DISTRICT DIRECTOR OF INTERNAL REVENUE FOR THE UNITED STATES OF AMERICA, DEFENDANT.
The opinion of the court was delivered by: Juergens, District Judge.
Plaintiff filed his complaint for injunction asking this Court
to enjoin the defendant and all those acting in concert with him,
or as his agent or servant, from collecting the assessment
heretofore made against him until a final determination is had as
to the liability of plaintiff in connection with alleged cabaret
tax due and that this Court determine the question of plaintiff's
liability with respect to mechanical music in his place of
business and the liability, if any, due under the provisions of
the cabaret tax (Section 1700(e), Internal Revenue Code, 1939;
Section 4231, Internal Revenue Code, 1954, 26 U.S.C.A. § 4231).
The defendant filed his motion to dismiss the complaint for
lack of jurisdiction of this Court because it appears on the face
of the complaint that this is a suit to restrain the collection
of internal revenue taxes, the maintenance of which is prohibited
by Section 7421(a) of the Internal Revenue Code of 1954,
26 U.S.C.A. § 7421(a); that the complaint fails to state a claim
upon which relief may be granted in that the relief prayed is
specifically prohibited by Section 7421(a) of the Internal
Revenue Code of 1954; that this is in the nature of a declaratory
judgment action to determine the question of a taxpayer's
liability with respect to taxes assessed, the maintenance of
which is prohibited by Section
2201, Title 28, U.S.C. and for other reasons.
The complaint alleges that the plaintiff is now and has been
for a substantial period of time since November, 1952, engaged in
the business and occupation of operating a tavern, night club, or
dramshop near Belleville, Illinois; that the defendant is a duly
authorized director of Internal Revenue in the district in which
plaintiff resides and is an authorized agent of the United States
Government for the purpose of assessing and collecting Federal
taxes, including the cabaret tax; that for some period prior to
filing this complaint a dispute has existed regarding the
liability of the plaintiff for certain alleged penalties due
under the provisions of the Internal Revenue Code known as the
Cabaret Tax Act; that since July, 1953, plaintiff has offered at
various times entertainment consisting of live music in the form
of small bands, orchestras, or combos; that during the period of
this entertainment a cabaret tax has been collected by the
plaintiff from his patrons; that this tax has been paid; that the
plaintiff has in his place of business mechanical or "juke box"
music which is used when live entertainment is not provided; that
the plaintiff has not permitted dancing to the mechanical music
but has directed patrons against dancing through the use of signs
and through instructions to his agents and servants; that the
defendant has arbitrarily and capriciously taken the position
that dancing was permitted to the mechanical music and has
assessed a tax on plaintiff's gross sales.
Under the provisions of Section 7421 of the Internal Revenue
Code, 1954, suits to restrain assessment or collection of any tax
Section 7421 provides in pertinent parts as follows:
"§ 7421. Prohibition of suits to restrain
assessment or collection.
"(a) Tax. — Except as provided in sections 6212(a)
and (c), and 6213(a), no suit for the purpose of
restraining the assessment or collection of any tax
shall be maintained in any court."
Sections 6212(a) and (c) and Section 6213(a), 26 U.S.C.A. §§
6212(a, c), 6213(a), do not apply in any manner to the question
here presented. The prohibition against suit for the purpose of
restraining assessment or collection of any tax is, therefore,
pertinent to the present situation.
The plaintiff asserts that Section 7421 of the Internal Revenue
Code of 1954 does not prohibit suits to enjoin the collection of
a tax in all situations; that there are exceptions to the rule
and where exceptional circumstances exist a court may enjoin the
collection of a tax notwithstanding the provisions of said
In Miller v. Standard Nut Margarine Co., 284 U.S. 498, 52 S.Ct.
260, 76 L. Ed. 422, the court enjoined the collection of a tax on
the grounds that the complaint in that case showed that there
existed special and extraordinary circumstances, sufficient to
bring the case within equity jurisprudence and enjoin the
collection of the tax.
An examination of the Miller case and the case here in suit
shows that there is no similarity as concerns the extraordinary
circumstances. A court of equity may not grant an injunction
contrary to the statute unless there exists simultaneously an
illegal tax and special and extraordinary circumstances. If
either element is lacking, injunctive relief will be denied.
Homan Mfg. Co. v. Long, 7 Cir., 242 F.2d 645. Huston v. Iowa Soap
Co., 8 Cir., 85 F.2d 649, 108 A.L.R. 173. Gehman v. Smith, D.C.,
76 F. Supp. 805.
The plaintiff alleges that the assessment is not a tax but
rather a penalty and that the attempted collection thereof is
illegal, which is the first requirement necessary to bring into
play the waiver of prohibition.
The tax here in controversy was imposed under the provisions of
Section 1700(e) of the Internal Revenue
Code of 1939 and Section 4231 of the Internal Revenue Code of
1954. The two sections as they pertain to this case are
Section 4231, Internal Revenue Code, 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, * * * The tax imposed under this paragraph
shall be returned and paid by the person receiving
such payments. * * *"
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. * * *"
Under the provisions of the statute, mechanical music is not
taxable where it is afforded in connection with the selling of
food, refreshment, or merchandise. No such exemption from the tax
is afforded where dancing privileges are provided.
The plaintiff has failed to show any authority upon which he
failed to pay the tax other than a disputed question of fact.
Assuming without deciding that the deficiency assessment levied
against the plaintiff is illegal, yet before this Court may grant
the relief sought by the plaintiff in his complaint for
injunction, there must exist special and extraordinary
The plaintiff contends that if the defendant is permitted to
enforce the collection prior to suit, an undue hardship would
result in that the plaintiff would lose his home, his business
and all wordly possessions if the deficiency assessment is
collected prior to determination of the questions the Court is
asked to decide, and that irreparable injury would result to the
plaintiff unless the injunction is granted. The plaintiff
contends that these facts constitute special and extraordinary
circumstances which warrant equitable intervention by this Court.
Hardship in raising money with which to pay taxes is now common
to all taxpayers, but this is not a special circumstance which
would justify a court in exercising its equity jurisdiction to
prevent collection by injunctive process. State of California v.
Latimer, 305 U.S. 255, 59 S.Ct. 166, 83 L.Ed. 159.
In Homan Mfg. Co. v. Long, the Circuit Court of Appeals for the
Seventh Circuit said [242 F.2d 653]:
"For the Miller case principles to become operative
`special and extraordinary circumstances' must
combine with illegality. After all the putative
taxpayer seeking relief in the Miller case came into
the district court armed with several judicial
adjudications, an official letter, and Treasury
Decision unanimously proclaiming non-taxability of
the type of product produced by it. Relying upon that
array of rulings for the prediction that its product
was non-taxable under the Oleomargarine Act of August
2, 1886, 24 Stat. 209, as amended by the Act of May
9, 1902, 32 Stat. 194, the manufacturer invested
capital and embarked on an enterprise — doomed to
strangulation by administrative caprice, hence
equitable relief was granted. The proposed tax was
illegal. The Miller circumstances were exceptional
even to the most jaundiced eye."
The Court further said at page 655, of 242 F.2d:
"Granting relief despite the statutory bar mandated
by § 7421 would entail exercise of the district
general equity jurisdiction. To deviate from that
clear Congressional direction could be countenanced,
if at all, only by adhering to case precedent."
Before this Court may enjoin the collection of a tax, there
must be considerably more shown than is alleged in the
plaintiff's complaint by way of special and extraordinary
The Court finds that there has not been such special and
extraordinary circumstances shown to permit this Court to
entertain a suit for injunction in direct conflict with the
statute prohibiting same.
Finding that insufficient facts have been alleged to show this
Court that it should intervene under is equity powers, it will,
therefore, dismiss the complaint and the cause of action.
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