The opinion of the court was delivered by: LEAVY
Plaintiffs herein have filed an action for the recovery of taxes paid under protest during two periods of time: July 1, 1945, to December 31, 1945; and January 1, 1946, to August 31, 1946. The taxes were levied under the provisions of section 1700(e)(1) of the Internal Revenue Code, as amended by section 622 of the Revenue Act of 1942, 26 U.S.C.A. 1700(e)(1).
The defendant moved to dismiss the complaint on the ground and for the reason that the facts, as pleaded by the plaintiffs, do not entitle them to the relief they seek. Upon presentation of the motion to dismiss, the plaintiffs sought, and were granted, permission to file an amended complaint.
The facts, as alleged by the plaintiffs in their amended complaint, are:
That from July 1, 1945, to August 31, 1946, which period of time includes both causes of action, the plaintiffs served beer and wine and sold other merchandise to their customers in their place of business, which was known and designated as 'Baldy's Tavern'; that the tavern consisted of a single large storeroom with booths situated along two sides and a bar on the third side;
That a mechanical music playing device, commonly known as a juke box, was located on the fourth side of the space which constituted the dance floor; that the juke box was not the property of the plaintiffs, but was owned by a third-party corporation, which corporation paid to the plaintiffs approximately one half of the income from such device for the privilege of maintaining the instrument on their premises; that between the hours of 9:00 a.m. and 12:00 p.m., on the nights of Wednesday, Friday, and Saturday of each week, during the period herein involved, the patrons danced to music furnished by the coin-operated juke box. The dance floor consisted of a space approximately 13 feet wide and 20 feet long; that the only music furnished was from the juke box, which was operated by the patrons by inserting their own nickels and at their own expense; that the plaintiffs inserted no nickels in the juke box to furnish music for the entertainment of the patrons during such times or period and no other type of music was supplied by the plaintiffs;
That the patrons at plaintiffs' tavern were charged no admission and there was no cover charge collected at any time; that the patrons paid only for such beer and wine as was served them on the premises; and that the prices charged for beer and wine were not increased during any period the tavern was open for business, whether or not dancing was allowed.
Since this matter comes on for hearing on defendant's motion to dismiss, the facts as alleged by the plaintiffs are accepted by the Court, and there is no issue of fact left for determination, the sole issue being one of law.
It will serve no useful purpose to examine in detail the earlier congressional enactments covering the subject matter here in controversy, nor can we look to the earlier judicial decisions involving the legislative enactments or treasury regulations. We must confine ourselves to the law as it existed during the period in question. We will also need to examine the Treasury Regulation effective for the enforcement of this provision.
The law, as it existed during the time involved herein, 26 U.S.C.A. § 1700(e)(1), and which appears in the Internal Revenue Code as section 622 of the Act of 1942, provides, among other things:
'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.' (Italics mine.)
The Treasury Regulation effective for the enforcement of this provision is T.R. 43 (1941 ed.), section 101.14, as amended byT.D. 5192, 1942-2 Cum.Bull. 249, 250, entitled 'Scope of Tax.' It provides:
'Where music, whether by an orchestra, a mechanical device or otherwise, and a space in which the patrons may dance is furnished in the dining room of a hotel, or in a restaurant, bar, etc., the entertainment constitutes a public performance for profit at a roof garden, cabaret, or similar place, and the payments made for admission, refreshment, service, and merchandise are subject to the tax.' (Italics mine.)
The plaintiffs attack the Regulation on the ground that it is legislative rather than interpretative, and they rely on the cases of United States v. Broadmoor Hotel Co., D.C. Colo. 1929, 30 F.2d 440; Busey v. Deshler Hotel Co., 6 Cir., 1942, 130 F.2d 187, 142 A.L.R. 563, affirming D.C., 36 F.Supp. 392; Schuster's Wholesale Produce Co., Inc., v. United States, D.C., La. 1943, 49 F.Supp. 909. (A later case from this Circuit, holding to the same effect, and relying upon the ...