Full opinion text
GRAVEN, District Judge. An action by the plaintiffs under Section 1340 of the Revised Judicial Code, 28 U.S.C.A. § 1340, to recover from the defendant Collector taxes claimed to have been illegally and erroneously collected. The question involved is whether the receipts of a ballroom operated by the plaintiffs are subject to the so-called “cabaret tax.” Section 1700(a) (1) of the Internal Revenue Code, 26 U.S.C.A. § 1700(a) (1), provides for a tax on, “the amount paid for admission to any place, including admission by season ticket or subscription.” Section 1650 of the Internal Revenue Code, 26 U.S.C.A. § 1650, fixes the rate of this “admissions tax” at 1 cent for each 5 cents or major fraction thereof paid within the terms of Section 1700(a) (1), supra. Section 1700(e) of the Internal Revenue Code, 26 U.S.C.A. § 1700(e), provides for a 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, by or for any patron or guest who is entitled to be present during any portion of such performance. The term ‘roof garden, cabaret, or other similar place’ 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. A performance shall be regarded as being furnished for profit for purposes of this section even though the charge made for admission, refreshment, service, or merchandise is not increased by reason of the furnishing of such performance. No tax shall be applicable under subsection (a) (1) on account of an amount paid with respect to which tax is imposed under this subsection.” Section 1650 of the Code, supra, fixes the rate of the tax under Section 1700(e) at 20 per cent. It is the claim of the defendant Collector that under the provisions of said Section 1700(e), supra,- the plaintiffs are subject to the so-called “cabaret tax” of 20 per cent on the receipts from their ballroom. The plaintiffs contend that the establishment operated by them does not come within the provisions of said Section 1700(e), but rather should be taxed under the terms of Section 1700(a) (1), supra. The particular tax payment which the plaintiffs seek to recover in this action' is the sum of $44.90 paid by them to the defendant Collector on December 13, 1948, and based on the receipts from their ballroom for the evening of December 9, 1948. This tax was paid by the plaintiffs and was not collected by them from their patrons. The plaintiffs filed proper claim for refund of the tax in question on December 13, 1948. On March 23, 1949, the Commissioner of Internal Revenue notified the plaintiffs that their claim for refund had been disallowed. The grounds set forth in the claim for refund are the same as those relied upon in this action. Since the tax on admission charges to the plaintiffs’ ballroom is approximately the same under the “admission tax” imposed by Section 1700 (a) (1) as under the so-called “cabaret tax” imposed by Section 1700(e), i. e., 20 per cent, the main controversy in this case has to do with the application of the so-called “cabaret tax” under Section 1700(e) to those receipts of the plaintiffs’ ballroom derived from the operation of a checkroom, rental of booths, and the sale of refreshments and merchandise. -So far as these particular plaintiffs are concerned the question of their tax liability or of their securing tax refunds in the amount of several thousand dollars is dependent upon the final determination of the validity or invalidity of their claim for refund in this case since plaintiffs have continued since December, 1948, to pay the tax demanded by the Collector under Section 1700(e) of the Internal Revenue Code, supra. There is also, under Section 1700(e), potential liability of the plaintiffs for taxes on similar receipts prior to December 9, 1948. The plaintiffs are a partnership composed of husband and wife and have since 1938 operated the Laramar Ballroom at Fort Dodge, Iowa. The ballroom is operated in portions of two adjacent buildings leased by the plaintiffs. There has been no substantial change in the space in which the plaintiffs operate their ballroom or in the manner in which it has been operated during the past ten years. One of the two buildings leased by the plaintiffs, known as the Armory Building, houses the major portion of the space occupied by the plaintiffs’ ballroom. It is also used by local units of the National Guard. In the building known as the Armory Building the space leased by the plaintiffs consistsi of a part of the basement, part of the first floor and that portion of the second floor consisting of a balcony. In the basement is located the plaintiffs’ business office, a checkroom, a fountain counter, rest rooms, and three wooden benches seating 15 persons. The first floor space consists of a dance floor 58 feet by 100 feet; a lounge with a seating capacity of 43 people, and a small lobby in which is located a box office where tickets for admission to the ballroom are sold. The balcony located on the second floor overlooking the dance floor is approximately 8 feet wide and extends around the entire dance floor at a height of 10 feet. In this balcony there is a fountain counter and also 38 booths seating 152 people. The space leased by the plaintiffs in the adjacent building consists of a room 20 feet by 70 feet connected with the dance floor by two entrances. In this space there is another fountain counter and also 35 booths seating 140 people, but there is no area for dancing. On certain nights 32 additional seats are usually provided ballroom patrons by the placing of 32 steel folding chairs around the edge of the dance floor. The total seating capacity of the ballroom, including the lounge, the space in the adjacent building, and the balcony, but excluding the 32 folding chairs, is about 350 people. The dance floor itself can accommodate 2000 people. The ratio of seating capacity to dance floor capacity is thus 17% per cent. During all the time the Laramar Ballroom has been operated by the plaintiffs, admission to the ballroom could only be obtained by the purchase of a ticket at the box office located in the lobby just inside the street entrance and the presentation of such ticket to a ticket taker stationed at the door connecting the lobby with the dance floor. The purchase of an admission ticket entitled the purchaser to dance the entire evening without further charge. Such admission ticket also entitled the purchaser to use the seats in the lounge and the seats in the room in the adjacent building without further charge. The purchaser of an admission ticket could rent one of the booths in the balcony for 60 cents per evening, or could use one of those booths without additional charge until it was rented to another patron. In the year 1948 the total receipts from booth rentals amounted to approximately one-half of one per cent of the total receipts of the ballroom. The plaintiffs held dances in their ballroom regularly on Thursday, Saturday, and Sunday nights starting in September and ■ending in May of each year. They also held dances there on those national holidays not falling on one of the regular operating days just noted. Dance bands or ■orchestras of local and national reputation furnished music for the dances. Entertainment distinct and different from the ■dance music itself has not been provided at any time. The plaintiff Larry V. Geer testified that he knew of no instance in •connection with the operation of the Lara-mar Ballroom where a patron purchased ■an admission ticket and did not avail himself of the dancing privileges. During the period each year from May to September the plaintiffs operate a so-called “summer ballroom” at a location other than that occupied by the Laramar Ballroom. The taxability of the receipts from the operation of this “summer ballroom” is not at issue in this case. On dance nights the music for the dancing begins at 8:30 P.M. and ends at 12:30 A.M. of the following day with two 10 minute intermissions for the orchestra during the evening. Except for those intermissions and' for the time taken by the members of the orchestra to turn their music, the dance music is continuous. The members of the dance orchestra do not leave the orchestra platform except during the intermissions. The ballroom is open approximately 30 minutes before the dance music starts, and the ballroom is closed as soon after the music stops at the patrons can get their wraps and leave. The regular established admission charge to the plaintiffs’ ballroom was 55 cents for Thursday nights prior to 9:00 P.M. and 65 cents after that hour; 65 cents for Saturday nights and 75 cents for Sunday nights. These prices include the Federal admission tax under Section 1700(a) (1) of the Internal Revenue Code, supra. The plaintiffs, from the time the ballroom opens on dance nights and until the dance music ends, have available for sale to their patrons soft drinks, peanuts, popcorn, candy, gum and cigarettes. Waitresses are available from whom these items may be ordered by patrons seated at any booth. Patrons may also purchase these items at any of the three fountain counters. Cigarettes are sold for 21 cents per pack, soft drinks at 10 cents per bottle, popcorn for 10 cents, peanuts for 5 cents per bag, candy bars for 5 cents, and gum for 5 cents. With the exception of cigarettes, which for a time were sold at 20 cents per pack, the prices charged for these refreshments and merchandise have remained constant. The prices charged for these items in the plaintiffs’ ballroom are the prices usually and normally charged for such items at other retail outlets. The purchase of any of these items is entirely optional with the patron and the dancing privileges of a patron are neither added to nor subtracted from by his purchase or failure to purchase any of these items. The patrons are not permitted to purchase these items after the dance music is over for the evening. There are no menus provided in connection with the sale of these items, and no meals or sandwiches are served by the plaintiffs at any time. There are no facilities for cooking in the plaintiffs’ ballroom, and they have neither silverware nor table linen. The only dishes used in the ballroom are water glasses and popcorn bowls. In the operation of their establishment the plaintiffs always represented and advertised it as a ballroom or dance hall with dancing as the sole entertainment. They never represented or advertised it as a place where meals or other food was dispensed. During the year 1948 the average amount spent by a patron for the items of refreshment and merchandise referred to was 27 cents. Since 1939 a checkroom has -been provided for those patrons who wish to check their wraps. A 10 cent charge is made for this service. The checking of wraps is entirely optional with the patrons. The checkroom is operated by plaintiffs’ employees who are employed on a salary basis. The plaintiffs frequently rent their ballroom to organizations for dancing or convention purposes. During the year 1948 the rentals derived therefrom amounted to less than 1 per cent of the total gross receipts of plaintiffs’ ballroom. For the year 1948 the receipts from the sale of admission tickets to the ballroom constituted approximately 67 per cent of the gross income therefrom, receipts from the sale of the refreshments constituted approximately 27 per cent therefrom, and receipts from the checkroom constituted approximately 6 per cent therefrom. The word “approximately” is used because a fractional percentage of the gross receipts was derived from rental of the ballroom to other organizations, and from the rental of booths. It is the claim of the plaintiffs that the ballroom operated by them did not and does not come within the provisions of said Section 1700(e) imposing a tax on the receipts of cabarets or other similar places. It is the contention of the plaintiffs that Congress in enacting that Section used the word “cabaret” in its ordinary and usually-understood sense and that in its ordinary and usually-understood sense the term “cabaret” does not include a ballroom such as is operated by the plaintiffs. The word “cabaret” is a French word of unknown origin which has been in use in English-speaking countries since at least the 17th Century. See, The Oxford English Dictionary (Second Edition). In Webster’s New International Dictionary (Second Edition) the word is denned as, “A cafe or restaurant where patrons are entertained by performers who dance and sing after the practice of certain French taverns.” In the Universal Dictionary of the English Language the word is defined as, “Small drinking place or night restaurant in which singing or dancing performances are given.” In a Dictionary of American-English the word cabaret is defined as, “A restaurant which provides entertainment by singers, dancers, etc.” In Webster’s New International Dictionary (Second Edition) the term “roof garden” is defined as follows: “A garden on a flat roof of a building: esp., a garden where refreshments are served, on the roof of a high building, often with a stage for entertainment.” From the legislative history of the statute in question hereinafter given it appears that Congress made use of the term “roof garden” to define the word “cabaret” more precisely. The plaintiffs presented a large amount of oral and documentary evidence as to the ordinary, popular, general and well-known signification given to the word “cabaret” as contrasted with the word “ballroom” and the distinction between the types of establishments characterized by the use of the word “cabaret” and the word “ballroom.” One of the witnesses as to this phase of the case was the District Manager for the States of Iowa, Kansas, and Nebraska for the American Society of Composers, Authors and Publishers. Another witness was the traveling representative of the American Federation of Musicians whose territory included ten Midwestern States. Another witness was in charge of orchestra bookings in eleven Midwestern and Western States. Another witness was the Chicago representative of “Billboard,” an amusement trade periodical of national circulation. The plaintiff, Larry V. Geer, who was the past president of the Midwestern Ballroom Operators’ Association, and its successor, the National Ballroom Operators’ Association, and who is at the present time chairman of the Board of Directors of the latter organization, was another witness. Quite a number of witnesses who either had operated ballrooms and were operating or were connected with operating ballrooms in Iowa and a number of other States testified as to this phase of the case. Some of the documentary evidence offered on this phase of the case consisted of menus from cabarets containing price lists and material showing the nature and kind of entertainment furnished by cabarets. The witnesses referred to were thoroughly familiar with the operation of ballrooms and cabarets locally, sectionally and nationally. The defendant Collector offered no evidence contradicting or disputing their testimony. The defendant Collector, however, did and does vigorously dispute the relevancy and materiality of their testimony. It appears from the testimony of those witnesses that in the amusement trade the term “night club” is customarily and ordinarily used as a synonym for “cabaret.” In their testimony the witnesses used those words interchangeably. In one of the more recent dictionaries, The New Dictionary (1947), the word “cabaret” is defined as, “A night club featuring entertainment by singers and dancers.” It clearly appears that a ballroom and a cabaret have many different characteristics. A ballroom has a large dance floor generally running from 1500 to 5000 square feet. A 'cabaret has a small dance floor. The District Manager for the American Society of Composers, Authors and Publishers testified that the largest cabaret dance floor in his territory was about 15 feet by 30 feet and that they averaged 15 feet by 15 feet. In a ballroom the dancing space is large in comparison to the rest of the space in the establishment while in cabarets the dancing space is small in comparison to the rest of the space in the establishment. A cabaret provides seating for all of its patrons and only admits those it can seat whereas a ballroom provides seating for only a rather small number of its patrons, generally not exceeding 20 per cent. A cabaret has entertainment separate and distinct from the dance orchestra music. Such entertainment is generally referred to as a floor show. These floor shows are of many kinds and variations and are subdivided into what are usually referred to as acts. The staging and handling of floor shows in a cabaret would seem to correspond somewhat to the type of entertainment provided in the world of the theatre. Except of infrequent occasions a ballroom provides no entertainment separate and distinct from the dance music. The plaintiffs in the operation of their ballroom have not furnished and are not furnishing entertainment separate and distinct from dance music. A ballroom has a box office where patrons purchase a ticket of admission, and no patrons are admitted without such ticket. 'Cabarets do not maintain box offices and do not sell tickets for admission. The prices charged by ballrooms for drinks, candy, popcorn, peanuts and gum are comparable to those charged in ordinary retail outlets. The prices charged by cabarets for food and drinks are greatly in excess of those charged by ordinary establishments vending food and drinks. Some menus were introduced into evidence giving among other prices the prices charged by certain cabarets for soft drinks similar to those sold by the plaintiffs. The prices at those cabarets for soft drinks were from 50 cents to 80 cents a bottle as compared with the price of 10 cents a bottle chai-ged by the plaintiffs. The average expenditure per patron for an evening at a ballroom ranges from $1.00 to $1.68 per person. There was testimony to the effect that the expenditure for one person for an evening at a cabaret would not be less than $5.00 and in a good many cases not less than $10.00. Ballrooms generally open from around 7:30 P.M. to 9:00 P.M. and generally close at from 12:30 A.M. to 1:30 A.M. A great many of the ballrooms close at 12:30 A.M. Cabarets usually open in the late afternoon and usually stay open several hours longer than do ballrooms. In some cases cabarets stay open until 4:00 A.M. and at times until 5:30 A.M. or 6:00 A.M. In ballrooms the dance music is usually continuous for a four-hour period except for one or two short intermissions. The total period of such intermission or intermissions is usually from 15 to 20 minutes. In cabarets the music for dancing is intermittent with fairly long and regular intermissions. An orchestra furnishing music for a cabaret is frequently on duty for six or seven hours per evening as contrasted with four hours per evening for orchestras furnishing music for ballrooms. It was testified to that there is some variation in the type and kind of orchestras used in ballrooms and in cabarets and that ballrooms tended to make more use of the larger and so-called “name” dance bands than do the cabarets, although some orchestras or dance bands do play in both. The receipts of a cabaret are to a large extent derived from the proceeds of the sale of food and drink. The greater part of the receipts of a ballroom are derived from the sale of admission tickets for dancing privileges. It was testified that it is not general or usual for a person to buy an admission ticket to a ballroom and not dance and that the primary purpose of those attending ballrooms is to dance. It was testified that only a very small percentage of cabaret patrons do make use of the dancing privileges afforded. It was further testified that cabaret patrons usually and generally patronized such establishments for purposes other than dancing and that such purposes were to see the floor show, to entertain guests, and to partake of food and drink. Ballrooms are classified as distinct from cabarets by the American Federation of Musicians and by the American Society of Composers, Authors and Publishers. Operators of cabarets are not eligible for membership in the National Ballroom Operators’ Association. In the amusement trade periodical, “Billboard,” ballrooms and cabarets are dealt with and covered in separate sections. A representative of that periodical testified that they were so separated because operators of cabarets were not interested in items pertaining to ballrooms and the operators of ballrooms were not interested in items pertaining to cabarets. It appears that ballrooms throughout the country do in general follow a fairly uniform pattern in their mode and manner of operation and that such pattern has been followed for a fairly long period of time. The plaintiffs in the operation of their ballroom have in general followed that pattern. There are some variations among ballrooms as to the number of nights they operate and a minor variation in the hours of opening and closing. Some ballrooms make a charge for checkroom service; others do not. Some ballrooms make a charge for booths; others do not. Some ballrooms serve beer and a few serve beverages of a higher alcoholic content. The plaintiffs in the operation of their ballroom served neither. The Internal Revenue Code has to do with a multitude of situations. Its provisions are of the greatest importance to the Government from the standpoint of revenue, and such provisions have been most carefully drafted. See, 35 American Bar Association Journal, December, 1949, p. 1002. Notwithstanding the carefulness of its draftsmanship, the intricate nature of the Internal Revenue Code has given rise to many questions of interpretation. The large number of cases having to do with the interpretation of the Internal Revenue Code and the large number of administrative rulings and regulations having to do with the interpretation of its provisions make it manifest that in few fields of law does the matter of interpretation have such a peculiar and important significance as it does in the field of law relating to that Code. Legislative history and administrative background are important aids in the interpretation of statutory provisions. The United States Supreme Court has clearly and emphatically stated the importance of legislative history in questions arising under the provisions of the Internal Revenue Code. In the case of Harrison, Collector v. Northern Trust Company, 1943, 317 U.S. 476, 479, 63 S.Ct. 361, 87 L.Ed. 407, a case arising under a provision of the Internal Revenue Code, that Court held that it was reversible error for the lower Court to refuse to give consideration to the legislative history of the provision involved even though the provision was on its face apparently plain and unambiguous. It would seem necessary to examine in some detail the legislative history and administrative background of the particular provisions of the Internal Revenue Code under consideration in the present case. The history of Section 1700 of the Internal Revenue Code, 26 U.S.C.A. § 1700, began in the year 1917 when for the first time Congress imposed a tax in the nature of an admissions tax upon entertainments of various kinds. The House Report on H.R. 4280, which became the Revenue Act of 1917, 40 Stat. 300, stated: “It is recommended that this tax be imposed upon all places to which admission is charged, such as motion picture shows, theatres, circuses, entertainments, cabarets, ball games, athletic games, etc.” H.R. Report No. 45, 65th Cong., 1st Sess., 1917, 8. The difficulty of imposing this “admissions tax” upon a category of entertainment in existence at that time known as “cabarets,” which usually made no admissions charge as such but rather included the price of admission in the amounts charged for refreshments, service, or merchandise afforded the patrons was clearly presented to the Senate Committee on Finance when it was conducting hearings on H.R. 4280 (the Revenue Bill of 1917). Mr. Ligón Johnson, representing The Theatrical Managers’ Association, stated in Hearings and Briefs before the Committee on Finance, United States Senate, 65th Cong., 1st Sess. at p. 385: “* * * The other point that I raise with relation to amusement taxes applies to the theaters’ chief competitor, and the single interest that has done more to detract from the theatrical patronage than anything else in the United States; that is, the cabaret. The House Committee contemplated a tax on cabarets, as it says in its report: ‘It is recommended that this tax be imposed on all places to which admission is charged, such as motion-picture shows, theaters, circuses, cabarets,’ and so on. “The trouble is that to the cabaret no admission fee is directly charged. That the cabaret is a public performance for profit is no longer an open question. The Supreme Court of the United States last January settled that in specific terms. I quote from the decision of that court in the case of Herbert v. Shanley [242 U.S. 591, 37 S.Ct. 232, 233, 61 L.Ed. 513]: ‘The defendant’s performances are not eleemosynary — they are part of a total for which the public pays, and the fact that the price of the whole is attributed to a particular item which those present are expected to order is not important. * * * If the performance did not pay, it would be given up. If it pays, it pays out of the public’s pocket. Whether it pays or not the purpose of employing it is profit.’ “As all of us who have attended cabarets know, there is a uniform increase in price in the food, drinks and merchandise sold. In many instances the bar price of a drink will be 15 cents, and in the cabaret hall it will be as high as 50 or 60 cents for the same thing. Certainly, it would not be worth the 50 or 60 cents to carry it up one flight of stairs. So that in all instances where a public performance of this character is given the public pays an admission price, although as Justice Holmes said, it may be disguised in the price of the article sold. We would suggest that it would not be difficult to draft an amendment to bring public performances for profit under the bill.” The Senate Committee on Finance seemed to be in general accord with the imposition of the admissions tax on entertainments as recommended in House Report No. 45, supra, but apparently as a result of its hearings the Senate Committee on Finance recommended the following changes in the House, version of the Revenue Bill of 1917: “Your committee recommended the following amendments to Title VII of the House bill: “First. Where admissions charged are in part or wholly included in the price paid for refreshments, service, or merchandise, the amount paid for such admission is to be computed under rules prescribed by the Commissioner of Internal Revenue, and a tax is proposed at the rate of 1 cent for each 10 cents paid for such refreshments, etc. “The purpose of this amendment is to impose a tax upon admissions to what are commonly known as cabarets at the same rate as is imposed upon admissions to similar entertainments or amusements. It has been held by the' courts that where extra charges were made for refresh-merits, service, and merchandise in places of amusement this extra charge constituted as admission charge. Adopting the principle of this decision, your committee has made the additional price paid for these things the basis of the tax for admission to such places.” Senate Report No. 103, 65th Cong., 1st Sess., August 4, 1917, 12. (Italics supplied). Both houses of Congress subsequently agreed to this Senate recommendation in the conference report contained in H.R. Report No. 172, 65th Cong., 1st Sess., Sept< mber 29, 1917, 17, 44, and the Revenue Act of 1917 as enacted provided in part for: “Section 700. * * * (a) a tax of 1 cent for each 10 cents or fraction thereof of the amount paid for admission to any place, including admission by season ticket or subscription, to be paid by the person paying for such admission * * *. “(c) a tax of 1 cent for each 10 cents or fraction thereof paid for admission to any public performance for profit at any cabaret or other similar entertainment to which the charge for admission is wholly or in part included in the price paid for refreshment, service, or merchandise; the amount paid for such admission to be comTiited under rules prescribed by the Commissioner of Internal Revenue, with the approval of the Secretary of the Treasury, such tax to be paid by the person paying for such refreshment, service, or merchandise.” 40 Stat. 318. Thus, from its inception, the admissions tax was imposed upon the general field of entertainment, which was further subdivided for purposes of the imposition of the tax into two different categories because of the nature of the entertainment subject to the tax. On the one hand was that form of entertainment to which a direct admission charge was made upon the patrons, as is the case with theaters, skating rinks or the like, and on the other hand that form of entertainment to which no admission charge as such was made but rather the charge for admission was included in whole or in part in the price paid by the patron for refreshment, service or merchandise. “What are commonly known as cabarets” comprised this second category. It should be kept in mind that this tax imposed by Section 700 of the Revenue Act of 1917, supra, was an admissions tax which had been enacted in two parts because of the peculiar nature of the operation of cabarets, which necessitated a different basis and computation of the admissions tax in their case. It seems apparent therefore that Section 700(c) of the Revenue Act of 1917 was intended to supplement Section 700(a) of the Revenue Act of 1917, which was the general admissions tax section, and was enacted to reach that portion of the charge imposed by a cabaret furnishing a public performance for profit which could fairly be attributed to an admissions charge, regardless of the form in which the charge was imposed. In accordance with the recommendations in Senate Report No. 103 and H.R. Report No. 172, both supra, and the authority contained in Section 700 of the Revenue Act of 1917, supra, the Commissioner of Internal Revenue promulgated T.D. 2603, announced December 4, 1917, which established a formula for the computation of the “admissions” tax in the case of any “cabaret or other similar entertainment.” T.D. 2603 provided in part: “Twenty percent of the amount paid for refreshments, merchandise, service, etc., including any sum paid for seats and tables reserved or occupied, at any public performance for profit at any cabaret or other similar entertainment, to which the charge for admission is wholly or in part included in the amount so paid, shall be regarded and deemed to be paid for admission to such performance.” An explanation of this rule established by the Treasury Department in T.D. 2603 for determining what proportion of the total charge of a cabaret or other similar entertainment was attributable to the admission charge of such establishment as well as a recommendation that the tax be increased was included in H.R. Report No. 767, 65th Cong., 2d Sess., September 3, 1918, 32, which provided in part: “The revenue act of 1917 levied a tax of 1 cent for each 10 cents or fraction thereof paid for admission to any public performance for profit at any cabaret or other similar entertainment and in case the amount charged for admission was included in the price paid for refreshment, service or merchandise, left the amount so included for admission to be determined by the commissioner. Under this provision the Treasury Department determined that a general rule could be laid down to the effect that 20 per cent of the amount paid for refreshment, service and merchandise represented approximately the amount covered by the total price paid which could be attributable to the admission charge, and upon the basis of this ruling collected the tax levied under existing law. A provision of the bill contains this Treasury ruling as a basis for determining the tax upon the admission where the admission charge is included in the price for refreshments. The tax upon admission to roof gardens, cabarets, and other similar entertainments is increased from 1 cent for each 10 cents or fraction thereof to 2 cents for each 10 cents or fraction thereof of the amount paid.” The interchangeable use of the term “roof gardens” with the word “cabaret” in that portion of the House Report quoted above was apparently an attempt to delimit more precisely the.term cabaret, and there is no indication that it was meant to alter or amend the legislative intent behind the Revenue Act of 1917. The term “roof gardens” as used in H.R. Report No. 767, supra, as well as the formula established in T.D. 2603, supra, were subsequently adopted in the Revenue Act of 1918, 40 Stat. 1057, but the rate of tax on admissions to any public performance for profit at any roof garden, cabaret, or other similar entertainment was not increased to the extent recommended in H.R. Report No. 767, supra. Section 800(a) (1) of the Revenue Act of 1918 taxing admissions generally, as well as Section 800(a) (6) taxing admissions to roof gardens, cabarets, or other similar entertainments, appear in 40 Stat. 1120, 1121, as follows: “(1) A tax of 1 cent for each 10 cents or fraction thereof of the amount paid for admission to any place * * *. “(6) A tax of 1% cents for each 10 cents or fraction thereof of the amount paid for admission to any public performance for profit at any roof garden, cabaret, or other similar entertainment, to which the charge for admission is wholly or in part included in the price paid for refreshment, service, or merchandise; the amount paid for such admission to be deemed to be 20 per centum of the amount paid for refreshment, service, and merchandise; such tax to be paid by the person paying for such refreshment, service, or merchandise.” The pertinent provisions of the 1918 Act remained unchanged in the Revenue Act of 1921, 42 Stat. 227, except that admission tickets of 10 cents or less were exempt from tax under Section 800(a) (1). See Section 800, 42 Stat. 289, 290. The Revenue Act of 1924 added the following sentence to both Section 500(a) (1) taxing admissions to any place, and to Section 500(a) (5) taxing admissions to any public performance for profit at any roof garden, cabaret or other similar entertainment: “Where the amount paid 'for admission is 50 cents or less, no tax shall be imposed.” 43 Stat. 320, 321. The Revenue Act of 1926 made no change in the pertinent provisions of the 1924 Act, except that admission tickets of 75 cents or less were exempt from tax under Section 500(a) (1). See Section 500, 44 Stat. 91, 92. The first Treasury Regulations on the subject were adopted in 1918. Treasury Regulations 43, 1918 Ed. The Regulations were continued in subsequent years. Treasury Regulations 43, 1919 Ed., Part 1; 1921 Ed., Part 1; 1922 Ed., Part 1; 1924 Ed., Part 1. In 1926 that portion of Treasury Regulations 43 applicable to the tax on admissions to any public performance for profit at any roof garden, cabaret, or other similar entertainment provided as follows: “Art. 8. Basis, rate, and computation of tax. — The tax imposed under the above provisions of the act applies to amounts paid for admission to any public performance for profit at any roof garden, cabaret, or similar entertainment, to which the charge for admission is wholly, or in part, included in the price paid for refreshment, service, or merchandise. If the admission charge, either in whole or in part, is so included, 20 per centum of the total amount paid for refreshment, service, or merchandise is deemed to be paid for admission, and if in excess of 50 cents will be subject to the tax at the rate of 1 Yz cents for each 10 cents or fraction thereof. “If a fixed admission charge is imposed and it is fair and reasonable in comparison with charges made for similar performances or entertainments under different circumstances, such charge is taxable under paragraph (1) of section 500 of the Act and the tax imposed under paragraph (5) above would not apply to amounts paid for refreshment, service, or merchandise. If such admission charge is inadequate to cover the cost of the entertainment provided, 20 per cent of the charge for refreshment, service, or merchandise is taxable under paragraph (5). Where a specific, and apparently adequate, admission charge is made but the prices charged for refreshment, service, or merchandise during the entertainment are higher than at other times, the tax under paragraph (5) will apply to the amount paid for refreshment, etc. “The fact that tax is paid on the admission charge proper under paragraph (1) will not operate to reduce or abate the tax due on the price paid for refreshment, service, or merchandise. Twenty per cent of the amount paid for the latter will be deemed to represent a charge for admission notwithstanding the payment of the specific but inadequate admission charge. “It should be noted that the tax attaches where the entire amount paid for food, service, and merchandise exceeds $2.50 even though expended on behalf of more than one person; therefore, where a party of six persons is presented with a bill amounting to $12 the amount of tax will be 36 cents. “The rate of this tax is different from that imposed on admissions proper under paragraph (1). However, it is not a flat 3 per cent tax, but is at the rate of W/z cents for each 10 cents or fraction thereof of the proportion (20 per cent) of the price paid for refreshment, service, or merchan•dise, which represents the charge for admission. In practice it is found more convenient to compute the tax on the basis of 11/2. cents for each 50 cents or fraction thereof of the total amount paid for refreshment, service, or merchandise in connection with public performances or entertainments at roof gardens, cabarets, etc. The process is simpler and the result is always the same. “Examples. — (1) A certain person invites four of his friends to attend a cabaret. No fixed charge is made for admission. His check for refreshments for the party amounts to $15.87. As 50 cents is contained in $15.87 thirty-one and a fraction times, the tax in this case is 48 cents (32 times l]/z cents). “(2) A certain person reserves a table for himself and three friends at a roofgarden entertainment and pays $12 for the reservation, this being the regular price. This being a charge for admission, and apparently being adequate, there is no tax in this case under these provision[s] of the Act, but a tax of $1.20 is imposed by section 500(a) (1) of the Act. “(3) A certain restaurant conducts a cabaret in its main dining room every evening from 8 to 12 o’clock. In this case a person who takes dinner in tha-t dining room and leaves the room before 8 o’clock and who therefore does not witness the cabaret at all is not subject to any tax under these provisions of the Act. “(4) In this same restaurant there are other dining rooms so entirely separate 'from the main dining room that from them nothing that is going on in the main dining room can be either seen or heard. No cabaret performance or other entertainment is furnished in these other rooms. In this case no person dining in one of these other rooms, even during the time that the cabaret performance is going on in the main dining room, is subject to any tax under these provisions of the Act. “(5) A hotel, running a cabaret, requires every person entering to purchase a $1 food check. This check is later accepted as $1 in payment of the food and other refreshments consumed. A certain person purchases such a check for $1 and spends an evening at the cabaret. His bill at the end of the evening comes to $8.33, and he pays it by handing in the check and paying $7.33 in cash. The $1 so paid for this check is not ‘paid for admission’ within the meaning of the Act. The tax in this case is [bjased on the $8.33 spent, and is 26 cents (17 times l]/2 cents). “(6) A certain man goes to a cabaret where there is a general admission charge of 80 cents. The entertainment provided is very elaborate, and this is reflected in the price of the food. His bill for food comes to $12.37. In this case there is an admission tax of 8 cents, due under Article 1, on the 80 cents paid on admission. But as this amount is clearly inadequate there is also a tax of 38 cents (25 times 11/^ cents), based on the amount paid for food. “Art. 9. Entertainments included.— ‘Any public performance for profit at any roof garden, cabaret, or other similar entertainment’ includes every public vaudeville or other performance or diversion in the way of acting, singing, declamation, or dancing, either with or without instrumental or other music, conducted for the profit of the management by professionals, amateurs, or patrons under the auspices of the management, in connection with the service of selling of food or other refreshment or merchandise at any room in any hotel, restaurant, hall, or other public place. Every form of entertainment so conducted is included, except instrumental music unaccompanied by any other form of entertainment. “Examples. — (1) A proprietor of a dancing establishment provides for the serving of refreshments to his patrons. No charge is made for ‘admission’ or for dancing. In this case the management is conducting an entertainment the admission charge to which is wholly .included in the price paid for refreshments, and there will be a tax under these provisions of the Act.” (Italics supplied). “(2) A certain hotel provides a space in its dining room for dancing and charges $1.00 admission to everyone entering the room. The prices charged for food are not increased to cover the cost of the entertainment furnished. In this case the amount paid for admission is not included in the price paid for refreshment but is this separate $1.00 charge. This charge, therefore, is taxable as an ‘amount paid for admission’ under section 500(a) (1) of the Act and the tax is 10 cents. (See Art. 1.) “(3) A certain other hotel maintains in its lobby a dancing floor surrounded by tables and serves refreshments to its patrons during the dancing hours. No charge is made for dancing. This is a case of a public performance for profit where the amount paid for admission is wholly included in the amount paid for refreshment and there will be a tax, therefore, under these provisions of the Act. “(4) A certain other hotel conducts in a room adjoining its dining room, during tea time and in the evening, an entertainment in the form of dancing for its patrons. No charge is made to those desiring to dance. This case, as the one mentioned in the preceding example, is a case where the amount paid for admission to a public performance for profit is wholly included in the amount paid for refreshment, and there will, therefore, be a tax under these provisions of the Act. “(5) A certain college alumni association gives a dinner to its members and invited guests, at a fixed charge per plate, at a certain hotel. Entertainers supplied by the hotel perform, and the diners themselves dance in an open space provided in the room. In this case, as the dinner is private, there is no tax, whether the cost of the cabaret performance is included in the charges per plate or is paid for in a lump sum by the alumni association. “(6) A certain chamber of commerce gives a dinner, in honor of a distinguished man, at $5 a plate. Tickets are sold to anybody desiring to attend. Entertainment is furnished by performers supplied by the hotel where the dinner is served. In this case, as the entertainment is supplied by the hotel, it is clearly for profit, and as the affair is also public there is a tax under these provisions of the Act. This tax applies to each individual payment made for a dinner ticket and is 15 cents (10 times I1/2 cents) in each case. “(7) A certain social club gives a dance at a hotel, charging $2 a ticket to both men and women. During an intermission in the dancing a light buffet supper is served. In this case the $2 is clearly paid for admission, and there is a tax of 20 cents under section 500(a) (1) of the Act (see Art. 1).” The Federal Tax Service (1926) from the records of the Corporation Trust Co., Part 2 (War Taxes) Chapter Three, pp. 1332-1334. It clearly appears from these 1926 Regulations that the Treasury Department had the same intent as did Congress in regard to the taxing of roof gardens, cabarets, or other similar entertainments, i. e., to insure that such types of entertainment would pay an admissions tax upon what would be a fair and reasonable admission in comparison with the other charges they imposed, whether such amount was charged to their patrons as an ordinary admission or was disguised in the prices patrons had to pay for refreshment, service or merchandise. Thus, under the provisions of Section 500(a) (1) and Section 500(a) (5) of the Revenue Act of 1926, supra, and the corresponding Treasury Regulations, set out above, as the prices charged for admissions, refreshment, service or merchandise were increased by the operator or proprietor of any roof garden, cabaret or other similar entertainment the tax upon such charges was increased accordingly, just as would be the case if a theater, an opera or the like increased the charges it made for admission. It should be noted that under these 1926 Regulations the operator of a roof garden, cabaret or other similar entertainment furnishing a public performance for profit could pay an admissions tax under Section 500(a) (1), the general admission tax section of the 1926 Revenue Act, on any direct admission charges imposed and also be subject to tax under Section 500(a) (5), the roof garden and cabaret tax section, for a tax on those charges he made for refreshment, service, or merchandise if the admission charge was considered inadequate or if the charges for refreshment, service or merchandise were increased during the period of the entertainment. This interpretation by the Treasury Department of Section 500(a) (5) of the Revenue Act of 1926 would appear to be in line with the indicated intent of Congress to impose an admissions tax upon that portion of the charges made by a roof garden, cabaret or other similar entertainment which could fairly be attributable to an admissions charge, regardless of the form in which the charges by such establishments were made. The Treasury Department as well as Congress apparently realized that there was a problem peculiar to roof gardens, cabarets, and the like which was not present in the case of the usual place of amusement imposing a direct admissions tax, such as a theater, skating rink, opera and the like. As noted above, that problem arose because of the nature of the operation of roof gardens and cabarets which usually imposed no admission charge as such, or only an inadequate admission charge, or would increase the prices of refreshment, service or merchandise during the period of entertainment. The amendments to Section 500 of the Revenue Act of 1926 imposed by Section 411 of the Revenue Act of 1928, 45 Stat. 863; Section 711 of the Revenue Act of 1932, 47 Stat. 271; Section 219 of the Revenue Act of 1933, 48 Stat. 209; Section 801 of the Revenue Act of 1936, 49 Stat. 1743, and Section 712 of the Revenue Act of 1938, 52 Stat. 573, effected only minor changes in Section 500(a) (1) of the Revenue Act of 1926, the general admissions tax section and did not purport to change the tax as imposed by Section 500(a) (5) of the Revenue Act of 1926 on any public performance for profit :at any roof garden, cabaret, or other similar entertainment. Provisions of Revenue Acts subsequent to the year 1926 which did effect changes in Section 500(a) (5) of the 1926 Act are noted below. Treasury Regulations 43 promulgated for the year 1926, set out above, remained the same in 1927, The Federal Tax Service, Corporation Trust Co., 1927, Pars. 6669-6687; and also in 1928, Standard Federal Tax Service, CCH (Loose Leaf Division of Corporation Trust Co.,) 1928, Pars. 1821, 1822. In 1930, Article 8 and Article 9 of Regulations 43 became Article 10 and Article 11 of Regulations 43. Example number 2 under Article 8 and examples numbered 2 and 7 under Article 9 of the 1926 Regulations, set out above, were omitted from Article 10 and Article 11 respectively of Treasury Regulations 43 in the year 1930. Tlhese were the only changes affected in Article 10 and Article 11 of said 1930 Regulations. Standard Federal Tax Service, CCH, 1930, pp. 2023-2025. The difficulties encountered in taxing the various type charges imposed by the operators of roof gardens, cabarets and the like upon their patrons were again pointed up in 1934 and 1935 when two Bureau of Internal Revenue rulings were issued to clarify the method of computing the tax in the situation where the roof garden or cabaret imposed a “minimum charge” upon each of its patrons. These rulings were issued under Section 500(a) (1) and Section 500(a) (5) of the Revenue Act of 1926, as amended by the Revenue Acts of 1928 and 1932. S.T. 726, C.B. XIII-1, 1934, 431, provided: “A ruling is requested relative to the proper method of 'Computing the tax on admissions to dances, cabarets, etc., where there is a minimum charge per person and food and/or beverages may or may not be ordered by the patrons to the amount of the minimum charge. “ * * * Where a minimum charge is made for each person admitted to a particular place, the amount of such charge is an admission charge witlhin the meaning of section 500(a) 1 of the Revenue Act of 1926, as amended, and is subject to the tax imposed by that section. If the menu prices at this place are higher at the time when dancing and entertainment are furnished, it is held that the charge for admission is included in the charge made for refreshments, service, or merchandise. In that event 20 per cent of such charge is taxable under section 500(a)5 of the Revenue Act of 1926, provided the entire amount of each bill less the minimum charge exceeds $2.50. “Where a fixed and definite charge is made for admission, which charge includes the cost of dinner and dancing, the entire charge is an admission charge within the meaning of section 500(a) 1 of the Revenue Act of 1926, as amended, and is subject to the tax imposed by that section.” S.T. 799, C.B. XIV-1, 1935, 420, modified S.T. 726, supra, as follows: “Where a minimum charge for entertainment, and/or refreshment, service, or merchandise is made for each person admitted to a cabaret, etc., and each person is entitled to order refreshment, service, or merchandise totaling the minimum charge, such charge is not taxable under section 500(a) 1 of the Revenue Act of 1926, as amended, as an amount paid for admission, but should be included in the total bill in computing the ‘cabaret’ tax under section 500(a)5 of the Revenue Act of 1926. “S.T. 726 (C.B. XIII-1, 431) is modified accordingly.” These rulings apparently recognized the distinction between the ordinary admission charge of a theater, opera and the like, which only entitles the patron to gain admittance and to watch the performance, ■and the minimum charge imposed by a cabaret, which not only entitles the patron to remain in tlhe establishment and permits him to watch the performance but also allows him to order refreshment, service, or merchandise up to the amount of the minimum charge without making further payments therefor. In line with this distinction S.T. 799, supra, provided that the minimum charge made by a cabaret should be taxed under Section 500(a) (5) of tlhe Revenue Act of 1926 imposing a tax upon charged made by roof gardens, cabarets, and the like, rather than under Section 500(a) (1) of the 1926 Act which is the general admissions tax section. Since this practice of imposing a minimum charge upon its patrons appears to be one unique to cabarets, the Bureau of Internal Revenue recognized the necessity of special rulings clarifying the taxability of such minimum charges. The distinction between the method of imposing an ordinary admissions charge and the type of “admission charge” made by a cabaret or similar place was apparently recognized in T.D. 4749, C.B. 1937-2, 519, 520, approved July 14, 1937, which provided in part: “ * * * All persons required to collect and account for tax on admissions must keep for possible inspection by revenue officers the portions of the tickets taken up by them, or in the case of a cabaret or similar place, the waiters’ checks, for a period of not less than three months. For penalties imposed in this connection see article 56.” In 1938 Articles 10 and 11 of 1930 Treasury Regulations 43, supra, applicable to roof gardens, cabarets, or similar entertainments were incorporated in the Code of Federal Regulations under Title 26, Chapter I, Subpart D, Section 100.10 and Section 100.11, Code of Federal Regulations, 1938, pp. 822-825. Section 100.10 of these Regulations was similar to Article 10 of the 1930 Regulations but provided in addition that the “cover charge,” which is unique to roof gardens, cabarets and the like, was actually an admission charge within the meaning of Section 500(a) (1) of the Revenue Act of 1926, as amended. “ * * * A ‘cover charge’ imposed upon each person admitted, or each person occupying a seat or table, is deemed to be an admission charge within the meaning of section 500(a) (1) as amended.” CFR, 1938, p. 823. Example number 5 of Article 8 of the 1926 Treasury Regulations, set out above, which had become example number 4 of Article 10 of the 1930 Regulations, was omitted from Section 100.10 of Title 26, Code of Federal Regulations, 1938, supra. Section 101.13 of Title 26, Code of Federal Regulations, 1940 Supp., pp. 2352-2354, was substantially similar to the corresponding Section 100.10 of Title 26, Code of Federal Regulations, 1938, supra. However, Section 101.14 of Title 26, Code of Federal Regulations, 1940 Supp., differed from its corresponding Section 100.11 of Title 26, of the 1938 Regulations in that example number 6 of the 1926 Treasury Regulations 43, Article 9, set out above, which had been included in Section 100.11 of the 1938 Regulations as example number 5, was omitted from Section 101.14 of the 1940 Supplement to the Code of Federal Regulations and a new example was added “(4) A hotel gives a New Year’s Eve party in its dining room for which a charge of $5 per person is made to anyone desiring to attend. A dinner is served and entertainment in the form of music and dancing by the patrons is furnished. The charge of $5 represents an amount paid for refreshment, service, or merchandise, including admission, and is subject to tax of 20 cents.” In addition, example number 1 of Section 101.14 of the 1940 Regulations, which had been example number 1 of Article 8 of the 1926 Regulations 43, set out above, was changed in that the words, “and the tax applies,” were substituted for the words previously used in the last sentence of said example number 1, “and there will be a tax under these provisions of the Act.” This change would not appear to be of legal significance. The provisions of Section 500(a) (1) and Section 500(a) (5) of the Revenue Act of 1926, as amended, imposing a tax upon admissions generally and upon amounts paid for admission, refreshment, service or merchandise to any public performance at any roof garden, cabaret or other similar entertainment, were incorporated in Section 1700(a) and Section 1700(e) respectively of the Internal Revenue Code of 1939. The rather complex process of determining what proportion of the charges made by a roof garden, cabaret or other similar entertainment could be fairly attributable to an “admission charge” and then devising a method of taxing such “admission charge” had apparently proven to be so unsatisfactory that in 1941 Congress, decided to change the method of computing the so-called “cabaret tax” under Section 1700(e) and the corresponding regulations. H.R. Report No. 1040, 77th Cong., 1st: Sess., July 24, 1941, 31, issued to accompany H.R. 5417, the Revenue Bill of 1941, contained a recommendation by the House Committee on Ways and Means for changing the basis of computing the “cabaret tax” in order to overcome “serious administrative difficulties.” “4. Changes in Basis of Computing Tax (Rates Increased in Certain Cases) “In addition to the increases made by the bill in the rates of the existing excise taxes described under the preceding heading, certain other excise taxes undergo a change of base and, in some instances, an increase in rate as well, under the bill. These existing excises with respect of which a change of base only is made are * * * “Admission tax. — * * * “Cabarets, roof gardens, etc. — Under the existing law, an attempt is made to segregate from the total charge made at cabarets, roof gardens, and similar places of entertainment, the portion attributable to a charge for admission, where such charge is wholly or in part included in the patron’s bill. This method of taxation has entailed serious administrative difficulties. “To obviate these difficulties, the bill makes the total charge the basis of the tax and applies to that base a rate of 5 per cent, in lieu of the existing rate of approximately 20 per cent of the portion of the bill attributable to an admission charge. Under existing law the tax is upon the patron but the owner of the establishment is charged with its collection and payment into the Treasury. The bill places the tax directly on the owner.” On p. 54 of the same report it was stated: “Section 542. Cabaret, Roof Garden, etc., Tax. This section revises the base of the present ‘cabaret’ tax. It imposes a tax of 5 per cent on amounts paid for admission, refreshment, service, and merchandise at any roof garden, cabaret, or other similar place furnishing a public performance for profit. Liability for the tax is imposed on the proprietor. The tax applies to all amounts paid. Under present law the tax is imposed on the patron under a rather complicated rate of 2 cents (including the defense tax) for each 10 cents of 20 per cent of the amount paid if 20 per cent of the amount paid exceeds 50 cents. “This section also makes certain amendments to administrative provisions of the Code applicable to the ‘cabaret’ tax and other admission taxes.” The “serious administrative difficulties” referred to in the House Report, set out above, apparently had reference to the unsuccessful attempts by the Treasury Department to exact the tax imposed by Section 1700(e) on hotel dining rooms wherein music and dancing were furnished in connection with the serving of food and no admission fee was imposed, either directly by a separate charge, or indirectly by including the charge for such music and dancing privileges in the price of the food. In United States v. Broadmoor Hotel Co., D.C.Colo.1929, 30 F.2d 440, the defendant hotel furnished music for dancing in certain of its public rooms during portions of each day throughout the summer and twice weekly during the winter months. The defendant also served tea in various of its public rooms, imposing a charge of 75 cents upon each patron ordering tea whether such patron was in a room where the music and dancing were available or not. Apparently one did’not have to be a guest of the hotel or buy tea in order to avail himself of t