Citations
- 188 F. Supp. 440
Full opinion text
PERRY, District Judge.
The above-entitled action came on for-trial before this Court without a jury and plaintiffs were represented by their-attorney, Robert Downing, and the defendant and counter-claimant, United: States of America, appeared by its attorney, R. Tieken, United States Attor-. ney for the Northern District of Illinois, and was represented by Harvey M. Silets,. Assistant United States Attorney.
The Court after carefully considering-the pleadings, the answers to the various . interrogatories, the testimony and the evidence offered, finds the following facts , to be true and correct, and based thereon reaches the following conclusions of law:-
Findings of Fact
1. This is a suit of a civil nature against the United States of America a sovereign power, for the recovery of cabaret taxes, alleged to have been erroneously, excessively and illegally assessed and collected pursuant to Section 1700 (e) of the Internal Revenue Code of 1939, 26 U.S.C.A. § 1700(e).
2. For the period November 1, 1949 ■ through May 31, 1953 the plaintiffs, Her-schell Miller and Ross Miller operated the Silver Palm as a tavern and cabaret, at 1117 Wilson Avenue, Chicago, Illinois. During that period of time liquid beverages were sold to customers. Entertainment was provided during certain of the. hours.
3. The books and records of the Silver Palm were maintained in a manner which set forth the receipts as follows:
(a) The amount for the barroom un-der the caption, “Bar.”
(b) The amount for the entertainment room under the caption, “Show” and “After-Show.”
'The books and records of the Silver Palm show the total for each of the separate classifications by month. The amount of cabaret tax for the sales recorded under the caption, “Show” was recorded separately for each month.
4. Plaintiffs’ Exhibits 1 through 11 are the ledger sheets of the plaintiffs for the period April 1950 through May 1953. According to the books and records of the Silver Palm the following is a list of the receipts by classification and cabaret tax collected and paid as separated by each month:
Date Bar Show Cabaret Tax After Show
1949
November $3,419.45 $6,100.05 $1,220.05 $4,202.65
December 3,583.60 6,217.50 1,243 30 3,756.95
$7,003.05 $12,317.55 $2,463.35 $7,959.60
1950
January 3,382.90 6,338.15 1,267.60 4,193.10
February 3,037.25 5,746.87 1,149.38 3,868.35
March 3,353.15 6,201.40 1,240.30 4,128.10
April 3,444.65 6,535.00 1,307.00 4,552.20
May 3,478.80 6,127.35 1,225.45 4,841.35
June 3,295.80 6,207.85 1,241.55 4,123.10
July 3,484.90 6,287.95 1,257.60 5,029.60
August 3,623.25 6,435.00 1,287.00 5,255.85
September 3,410.80 6,095.10 1,210.10 5,132.00
October 3,344.40 6,160.80 1,232.15 4,426.30
November 3,083.80 5,479.40 1,095.85 4,219.75
December 3,250.45 5,578.85 1,115.75 3,788.70
$40,190.15 $73,193.72 $14,638.73 $53,558.40
1951
January $ 3,198.15 $ 2,394.09 $ 478.81 $ 8,429.60
February 2,750.05 1,567.30 313.46 8,446.20
March 3,042.70 1,863.34 372.66 8,905.00
April 3,153.85 1,381.65 276.33 9,589.20
May 3,388.75 1,392.71 278.54 9,409.55
June 3,552.10 1,623.16 324.64 9,726.30
July 3,509.40 1,244.17 248.83 9,342.10
August 3,524.05 1,474.42 294.88 10,416.25
September 3,393.25 1,439.13 287.82 10,724.95
October 3,426.00 1,509.15 301.82 10,802.35
November 3,384.95 1,362.41 272.84 9,3i3.80
December 3,635.08 1,194.34 238.86 9,209.45
$39,938.33 $18,445.87 $3,689.49 $114,434.75
1952
January $ 3,343.87 $ 1,375.14 $ 269.00 $ 9,326.26
February 2,933.60 1,181.90 241.81 9,216.00
March 3,067.40 1,253.42 250.68 9,353.85
April 3,014.05 1,173.92 234.78 8,853.00
May 3,135.10 1,277.63 255.52 10,521.45
June 3,121.65 1,155.45 231.10 9,235.05
July 3,253.00 1,058.30 211.65 9,234.95
August 3,272.30 1,186.50 237.30 10,310.90
September 3,194.00 1,104.86 220.99 ' 8,909.30
October 3,091.95 1,073.38 214.67 8,372.35
November 2,582.71 - 1,060.71 212.14 8,447.40
December 2,594.00 885.38 177.07 7,463.25
$36,603.63 $13,786.59 $2,756.71 $109,243.76
1953
January $2,192.90 $ 1,167.84 $ 233.56 $ 8,491.75
February 1,966.80 1,061.50 , 272.30 7,353.60
March 1,975.19 951.92 190.38 7,473.85
April 1,969.90 1,031.79 206.36 6,961 90
May 2,086.45 1,176.67 235 53 8,129.70
$10,191.24 $ 5,389.72 $1,138.13 $38,410.80
The cabaret tax was paid on the basis of the receipts recorded by the plaintiffs under the caption entitled, “Show.” No cabaret tax was paid by the plaintiffs for the amounts recorded as payments under the caption entitled, “After-Show.”
5. The interior of the Silver Palm was physically arranged as follows:
A barroom which contained stools at the bar and a few booths.
A separate room in which the entertainment was provided, which had a bar, booths, tables and chairs.
6. On December 30, 1955 the then District Director of Internal Revenue issued an assessment for the period from November 1, 1949 through June 30, 1952 in the amount of $35,925.69 with interest in the amount of $9,471.13. This assessment was computed essentially upon the Government’s contention that the following receipts from the entertainment room recorded in the books and records of the plaintiff (except as otherwise indicated) under the heading “After-Show” were subject to the excise tax:
1949 November-Deeember (estimated) ! 6,749.95
1950 • 12 Months (January-March estimated) 43,682.43
1951 12 Months 114,434.75
1952 , January-June 56,505.61
Notice and • demand for payment was mailed to the last known address of the plaintiffs on December 30, 1955.
7. On August 31, 1856, the then District Director’of Internal Revenue issued an assessment for the period from July 1, 1952 through May 31, 1953 in the amount of $14,858 with interest in the amount of $3,217.33. This assessment was computed essentially upon the Government’s contention that the following receipts from the entertainment room recorded in the books and records of the plaintiff under the heading “After-Show” were subject to the excise .tax:
1952 July-Deeember $52,738.15
1953 January-May 38,410.80
Notice and demand for payment was mailed to the last known address of the plaintiffs on September 26, 1956.
8. Pursuant to the assessments previously referred to in paragraphs 6 and 7, there has been collected the sum of $2,406.36; $2,002.57 being collected from Ross Miller and $403.89 from Herschell Miller. The aforesaid $2,406.36 was applied in reduction of the assessment referred to in paragraph 6. An additional amount of $578.10 was collected from the plaintiffs in January, 1960; $575.46 being applied in reduction of the assessment referred to in paragraph 6 and $2.64 applied to interest accrued on that assessment.
9. On November 29, 1957, the plaintiffs filed with the District Director of' Internal Revenue in Chicago, Illinois, a. claim for refund in the total amount of $2,406.36 plus interest, which amounts, represent the money collected by the District Director of Internal Revenue based upon the assessments made by the District Director of Internal Revenue.
10. On March 5, 1958, the District Director of Internal Revenue at Chicago, Illinois, denied plaintiffs’ claim for refund.
11. The District Director of Internal Revenue has not refunded any amount which has been previously collected from the plaintiffs based upon the assessments, made by the District Director of Internal Revenue.
12. On July 25, 1957, plaintiffs by this action sought to recover the amount of cabaret taxes in the amount of $2,-406.36, plus interest, set forth' in their aforesaid claim for refund. Upon the conclusion of the evidence, plaintiffs. ••sought to amend their complaint to recover in addition the amount of $578.10 collected from 'the plaintiffs after the ■commencement of this action.
13. At the request and authorization of the Commissioner of Internal Revenue and under the direction of the Attorney General of the United States pursuant to the provisions of Section 7401 of the Internal Revenue Code of 1954, 26 U.S. C.A. § 7401, the United States of America filed its counter-claim to recover the then outstanding and unpaid balance of $61,065.79 it claimed to be due upon the aforesaid assessments.
14. The entertainment offered at the Silver Palm was burlesque — strip-tease dancing which commenced between 9:00 p. m. and 10:00 p. m. each evening and was performed continuously thereafter until it closed between 3:00 a. m. and 4:00 a. m.
15. The Silver Palm operated under a local liquor license which permitted the plaintiffs to sell alcoholic beverages to 4:00 a. m. each night and to 5:00 a. m. on Saturday night (Sunday morning).
16. Week nights there were three bartenders and one waitress serving in the entertainment room. Week ends there were four bartenders and two waitresses serving in the entertainment room. The work schedules of the bartenders were arranged so that all the bartenders worked during the hours the entertainment was furnished, though one bartender arrived prior to the commencement of the entertainment. The other bartenders worked an eight-hour shift which ended at 4:00 a. m. on week nights. The available payroll records do not disclose any overtime being paid the bartenders.
17. It was the practice of the bartenders and “bouncer” to ask the customers to leave at 4:00 a. m. The street lights of the Silver Palm were turned off and the stools in the front room placed on the bar so that after 4:00 a. m. on week nights and 5:00 a. m. on .week ends the Silver Palm appeared to be closed. Chicago Police Department records for 1952 and 1953 do not disclose any complaint or arrest of plaintiffs for operating the Silver Palm beyond the hours permitted by their liquor license.
18. The entertainment room was open for business a’ short time each night prior to the commencement of the entertainment, and those customers purchasing beverages at such time were permitted to remain to view the show. The prices on drinks in the entertainment room before the show commenced and during the presentation of the show were-identical. No cover or minimum charges were made of customers to permit them to see the show. Such prices, however, were higher than the prices for similar beverages served in the front bar.
19. Thé books and records which reflect what purports to be the breakdown of total sales in the entertainment room between the time the entertainment was furnished and when no entertainment was presented were based upon figures presented to their accountants by the plaintiffs, Ross and Herschell Miller. Based upon information furnished by plaintiffs, the excise tax returns were prepared.
20. The bar in the entertainment room was on occasion operated and some sales were made after hours and after the entertainment had ceased. Of the number of hours each business day drinks could be obtained in the entertainment room, this Court finds that entertainment was presented for at least half the time.
21. Listed below is a comparison of amounts expended for entertainment expense and agents’ expense, with show receipts. These are both expenses directly related to the presentation of the entertainment.
Period Expended for Entertainment Agents Total Total Show Receipts
2950
January $ (a) $ (a) $ (a) $
February (a) (a) (a)
March (a) (a) fa)
April 3,502.19 2,400.00 5,902.19 6,535.00
May 2,869.80 1,620.00 4,489.80 6,127.35
June 2,900.99 1,720.00 4,620.99 6,207.85
July 3,547.94 2,400.00 5,947.94 6,287.95
August 2,926.16 1,920.00 4,846.16 6,435.00
September 3,608.60 2,400.u0 6,008.60 6,095.10
October 2,944.77 1,920.00 4,864.77 6,160.80
November 2,851.07 1,920.00 4,771.07 5,479.40
December 3,209.51 2,482.00 5,691.51 5,578.85
1950 — 9 Mos. $28,361.03 $18,782.00 $47,143.03 $54,907.30
1951
January $ 2,624.70 $ 1,813.00 $ 4,437.70 $ 2,394 09
February 2,409.66 1,607.00 4,016.66 1,567.30
March 2,648.79 1,651.00 4,299.79 1,853.34
April 2,996.68 2,065.00 5,061.68 1,381.65
May 2,548.32 1,674.00 4,222.32 1,392.71
June 2,560.81 1,658.00 4,218.81 1,623.16
July 3,224.53 2,028.00 5,252.53 1,244.17
August 2,935.21 1,594.00 4,529.21 1,47.4.42
September 3,705.11 2,011.00 5,716.11 1,439.1»
October 2,956.90 1,613.00 4,569.90 1;509.15
November 2,919.48 1,669.00 4,588.48 1,362.41
December 3,554.65 2,049.00 5,603.65 1,194.34
Year 1951 $35,084.84 $21,432.00 $56,516.84 $18,445.87
1952
January $ 2,640.00 $ 1,876.00 $ 4,516.00 $ 1,375.14
February 2,621.78 1,828.00 4,449.78 1,181.90'
March 3,153.53 2,216.00 5,369.53 1,253.42
April 2,788.68 1,765.00 4,553.68 1,173.92
May 2,633.59 1,751.00 4,384.59 1,277.6»
June 3,346.70 2,131.00 5,477.70 1,155 *5-
July 2,764.63 1,723.00 4,487.63 1,058.30'
August 3,324.83 2,156.00 5,480.83 1,186.50-
September 2,659.50 1,788.00 4,447.50 1,104.86-
October 2,647.56 1,733.00 4,380.56 1,073.38-
November 3,425.10 2,101.00 5,526.10 1,060.71
December 2,434,95 1,6U00 4,046:95 885.38
Year 1952 $34,440.85 $22,680.00 $57,120.85 $13,786.59-
1953
January $ 2,661.05 $ 1,780.00 $ 4,441.05 $ 1,167.8*
February 2,582.53 1,753.00 4,335.53 1,061.50
March & 3,236.24 - .2,193.00 5,429.24 951.92
April 2,933.34 1,681.00 4,614.34 1,031.79
May 3,426.63 2.098.00 5.524.63 1,176.67
1953 — 5 months $14,839.79 $ 9,505.00 $24,344.79 $ 5,389.72
TOTAL $112,726.51 $72,399.00 $185,125.51 $92,529.48