Rev. Rul. 56-641

The Internal Revenue Service has been requested to state its position with respect to the application of the cabaret tax to payments for services rendered in a place normally operated as a cabaret, where it is turned over to an organization to be used by the organization in connection with a private affair conducted by it at a time when the room is usually operated as a cabaret for the public.

The organization engaged a hotel dining room for the purpose of holding its annual banquet. Only registered delegates of the organization and their guests were admitted. The room in which the banquet was held is normally operated as a cabaret furnishing a public performance for profit. The affair was held on an evening when such room is usually open to the public. The hotel furnished the dinners and refreshments. The services of the orchestra and the floor show currently appearing at the hotel room also were engaged by the organization for the evening of the banquet. They were under the control of the organization as to hours, choice of music, programs, etc.

Section 4231(6) of the Internal Revenue Code of 1954 imposes 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. Section 4232(b) of the Code defines the term `roof garden, cabaret, or other similar place,' to 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.

It is held that amounts paid for refreshment, service, or merchandise to a proprietor of a place normally operated as a cabaret furnishing a public performance for profit are subject to the cabaret tax when the premises are turned over to an organization for use in connection with a private banquet, dinner, etc., if (1) the affair is held at a time when the place is ordinarily operated as a cabaret for the public, and (2) the services furnished by the cabaret, including the entertainment, are substantially the same as are normally made available to the public. Under the circumstances, where the performance presented for the organization is similar to that offered to the public, no distinction is made taxwise between the occasions when the cabaret is used solely by the organization, and when it is open to the public. The arrangements whereby the cabaret turns over its facilities to the organization is regarded as a reservation by the cabaret of its accommodations for the organization. The fact that the organization may exercise a certain amount of control over the entertainment provided, as to hours, choice of music, programs, etc., is immaterial. Accordingly, the payments by the organization to the hotel for all of the services rendered in connection with the banquet are subject to the tax.

On the other hand, the tax would not apply, if the situation were such that, even though the affair was being held at a time when the place is otherwise ordinarily operated as a cabaret, the establishment furnishes only the dinner, and, in lieu of the entertainment the establishment was providing immediately prior to or after the affair in question, the private organization provides its own entertainment.