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19 Taxes 742 (1941)
Washington Tax Talk

handle is hein.journals/taxtm19 and id is 742 raw text is: Implications of the Cabaret Tax Jack and Jill went to the bar To get a glass of beer. 10¢ they laid across the board, Summoning the barman who roared 10 is the price my dears, Following Section 542, this year. However, Jack and Jill won't go thirsty because, if the barman wishes to stay in business and meet his neighbor's competition, he will swallow the extra half penny himself. The Revenue Act of 1941 has some very harsh provisions, some made unjustly so by the Regulations of the Bureau. We are presently concerned with Sec- tion 542 of this Act,1 commonly known as the tax on cabarets, roof gardens, etc. This particular section provides that there shall be a tax equivalent to 5 per centum of all amounts paid for admission, refreshment, service and merchan- dise at any roof garden, cabaret, or other similar place furnishing a public performance, for profit, if any pay- ment, or part thereof, for admission, refreshment, service or merchandise, entitles the patron to be present dur- ing any portion of such performance. This tax is not new. The substance of this law was first enacted in the Revenue Act of 1918 and carried down through the Revenue Act of 1940.2 It was originally considered a sort of tax on admissions to the type of place previously mentioned. However there was no difficulty incurred in collecting this tax from the consumer because the person receiving this 'Section 1700(e) of the I. R. C. 2 Section 1700(e) of the I. R. C. of 1940 provided for a tax of 20 for each 100 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 20% of the amount paid for refreshment service or merchandise; where the amount paid for admission is 500 or less, no tax shall be imposed. ''service or merchandise had to incur a bill of over $2.50 for the evening in order to become liable to the tax under the previous rule. Under the present law, the tax is imposed on the entire gross receipts of any place deemed to be a cabaret, roof garden and the like if they-furnish a public performance for profit. The regulations provide in substance that the corner bar room or hole in the wall restaurant is subject to Section 542 of the Act if it furnishes a public performance. The Bureau of Internal Revenue has ruled that . any public performance for profit includes every public vaudeville or other performance or diver- sion 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 prnfesinals, amateurs, or patrons under thc auspices of the management, in connection with the 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.3 It would appear that the Regulations cited above are broad enough to include the water bugs dancing in the kitchen sink whenever a stream of water is played upon them. A broad analysis of the law as presently interpreted by the Treasury indicates severe economic consequences upon small taverns, restaurants and the like if they have radios and juke boxes furnished for the enter- tainment of their patrons. These places in most cases will not advance their selling prices because of com- petitive conditions. That is, their neighbor across the street who has no music or entertainment outside of an occasional bar room brawl, need not raise his prices I Regulation 43:101.14.

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