United States v. Lambeth

¶4*811BONE, Circuit Judge.

¶5This action was brought for a refund of taxes assessed under 26 U.S.C.A. § 1700 which provides for a cabaret tax on amounts collected for admissions, refreshments, service and merchandise by establishments furnishing a public performance for profit.1 The tax was assessed against appellee as an individual upon receipts obtained as manager of the so-called “Cozy Club” for the period from May 1, 1943 to July 31, 1944. The tax amounted to $6,-813.97.

¶6The “Cozy Club” was incorporated in Oregon in 1929 as a non-profit organization. For some time prior to 1941, it had been managed by one Church who received for his “services” a straight salary, plus further compensation as rental for certain equipment used by the “club.” The organization at this time operated under a “Service License” 2which permitted the licensee to mix and prepare drinks from liquors furnished by patrons and requires the licensee to serve the public generally.3 Appellee bought Church’s interest and equipment and continued to lease the same to the club which was renamed the “La Fiesta” and its location changed. Appellee was entitled “Secretary-Treasurer” and acted as manager. She was personally responsible for all expenses and received all the profits derived from slot machines, checkroom, etc., and from the sale of food and mixing of drinks, as “salary” and rental. Appellee furnished music from a “juke box” but dancing was not permitted under this “Service License.”

¶7In September, 1943, a restaurant license was obtained from the same State authority.4 This license also contemplated service to the general public.5 It is admitted that at all times pertinent to this case the enterprise did not have a “Club License.” 6

¶8There can be but little question but that appellee was engaged in the operation of a business for personal profit. Her activities fall neither within the normal connotation of the term “club” 7 nor within

¶9*812Oregon statutory definition.8

¶10The laws of Oregon are entitled to respectful consideration and under our form of government, the relevancy of local laws should always be considered.9 However, in a purely Federal field, Congressional purpose and intentions are paramount.10 The application of' a Federal statute may be conditioned upon a status determined by local law, but such is not the situation here. The issue to be determined was whether the precise naturé and character of appellant’s operations during'the tax period produced income .which, under ■the terms of the applicable taxing, statute, justified and required the tax assessment levied against her. It thus became the duty ■of the-trial court to weigh and appraise the fácts concerning,,these operations as .disclosed in the evidence and testimony, and upon this-fact basis' determine whether the ’tax was validly assessed. Compare Commissioner of Internal Revenue v. Tower, 327 U.S. 280, 286, 287, 66 S.Ct. 532, 90 L.Ed. 670, 164 A.L.R. 1135, and Commissioner of Internal Revenue v. Culbertson, 69 S.Ct. 1210.

¶11Thus the sole issue before us is whether the evidence rationally supports the finding that appellee, in her conduct of this business enterprise, did not serve the public, for such is the requirement of the Federal taxing statute here involved. Merely because appellee admits violation of Oregon laws does not make her subject to Federal taxes. We hold the finding to be so supported.

¶12There is abundant evidence that, in spite of State license requirements, appellee, during' the tax period here involved, refused to admit persons not having “membership” cards. Expanded . patronage being necessary to continued operation, active -solicitation of new “members” was undertaken although “admittance” .cards were apparently accessible to almost any one who desired to *813“join.” A liberal guest policy was inaugurated and so-called “dues” were used to repay appellee for her expenses in remodeling ’and decorating the premises.

¶13Because of the exclusion of the general public, the Oregon Liquor Control Commission revoked the restaurant license on January 21, 1945. The evidence revealed that appellee subsequently operated the premises as an individual.

¶14On the evidence adduced, the trial judge found that at all times here relevant appellee was not serving the public and was thus not furnishing a public performance for profit within the definition of the Federal taxing statute. The two witnesses for the Government failed to convince him otherwise and he ordered judgment for appellee m the amount of the refund, plus interest.

¶15On this record we think that the case falls within Rule 52(a) of the Federal Rules of Civil Procedure, 28 U.S.C.A., in part providing: “Findings of fact shall not be set aside unless clearly erroneous, … ” 11 Clear error calling for reversal is not present and the Government’s presentation fails to convince us otherwise.

¶16Affirmed.