Rev. Rul. 57-263

Advice has been requested whether amounts paid for food, refreshment, or merchandise dispensed by means of vending machines in an establishment which qualifies as a cabaret are subject to cabaret tax; if so, it has been requested that a determination be made as to the person liable for the return and payment of the tax in the situations described below.

1. A cabaret owner or operator rents certain vending machines which he places in his cabaret for the dispensing of food, refreshment and cigarettes to patrons. The cabaret owner or operator has control over the machines, pays the operating expenses, maintains them, and receives all the proceeds therefrom. Under the rental agreement, the owner of the machines receives either a flat rate each month or an amount equal to a percentage of the gross receipts from the machines.

2. A cabaret owner or operator grants to another person rights to concessions in the cabaret. The concessions include the operation of food, refreshment and cigarette vending machines, the photographing of customers, and the maintenance of checking facilities. Under the terms of the agreement between the parties, the concessionaire receives the proceeds from the concessions, pays the operating expenses, provides necessary maintenance and service, and has control over the vending machines and the photographic and checking facilities. The concessionaire pays the cabaret owner a flat rate for the concessions rights or an amount equal to a percentage of the gross receipts derived from the concessions.

Under the provisions of section 4231(6) of the Code, a tax is imposed upon 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. That section also provides that the tax shall be returned and paid by the person receiving such payments.

The statute imposes the tax upon all amounts paid for admission, refreshment, service, or merchandise, at a cabaret, and there is no qualification with respect to how the serving or selling of food, refreshment, or merchandise must be accomplished. The law also provides that the person receiving such payments at a cabaret is liable for the tax thereon, and there is no provision that liability shall be limited to the owner or operator of the cabaret. Nor is there any statutory requirement that, where a concessionaire receives such payments, the concession must constitute a cabaret in and of itself for the payments to be subject to tax. The determination of who receives the payments must be based upon the facts of each particular case.

It is held that amounts paid for food, refreshment, or merchandise at a cabaret are subject to tax even though such items are dispensed by means of vending machines. It is further held that, under the circumstances described in (1) above, the cabaret owner or operator who rents and operates the vending machines is the person receiving the payments for the food, refreshment, or merchandise within the meaning of section 4231(6) of the Code, and he is liable for the return and payment of the tax on the total receipts from the machines. Under such circumstances, the owner of the machines is not liable for tax on amounts paid to him by the cabaret owner or operator for the rental of the machines, regardless of the basis upon which the rental payments are made.

On the other hand, it is held, that under the circumstances described in (2) above, the concessionaire is the person receiving the payments for the food, refreshment or merchandise, and he is liable for the return and payment of the tax on the total receipts from the machines. A photographic or checking concession is considered to provide a `service' within the meaning of the statute and fixed amounts paid by patrons of the cabaret for such service are subject to the cabaret tax. Under these circumstances, the cabaret owner or operator is not liable for tax on amounts paid to him for the concessions rights regardless of the basis upon which payments are made.