Villa Nova Night Club, Inc. v. Comptroller of Treasury

Singley, J., delivered the opinion of the Court. Chap. 161, § 2 of the Laws of 1969, effective 1 June-1969, amended Maryland Code (1957, 1965 Repl. VoL, 1969 Supp.) Art. 81, § 402 and increased from one-half of one percent to four and one-half percent the tax on the gross receipts of “every person, firm or corporation derived from the amounts charged for * * * admission, cover charge for seats or tables, refreshment, service or merchandise at any roof garden, cabaret or other similar place where there is furnished a public performance when payment of such amounts entitles the patron thereof to be present during any portion of such performance.” Chap. 161, § 1 amended Code, Art. 81, § 324, and increased the rate of Maryland’s retail sales tax from three percent to four percent, effective 1 July 1969. At the same session, the General Assembly enacted Chap. 755, which amended Art. 81, § 403 and added Baltimore City to those incorporated cities and towns 1 which are permitted to impose a gross receipts tax to the same extent and in the same manner (but not necessarily in the same amount) as that imposed by Art. 81, § 402.

Villa Nova Night Club, Inc. (Villa Nova), which operates the Villa Nova Show Bar at 418 East Baltimore Street in Baltimore, was understandably alarmed by the-prospect that its patrons would pay, directly or indirectly, a tax of eight and one-half percent on beverages and refreshments served there and by the certainty that this might be increased if Baltimore City elected to act in the ³⁸⁴ manner permitted by Chap. 755. 2 Villa Nova filed a bill in the Circuit Court of Baltimore City for a declaratory ■decree and injunctive relief, alleging that the manner in which taxpayers were classified, by Art. 81, § 402, both before and after the 1969 amendment, was arbitrary, discriminatory and capricious, and that § 402 was therefore unconstitutional. A similar attack was levied at Chap. 755, coupled with the additional contention that Code, Art. 2B, § 26 (a) precludes the imposition of alcoholic beverage license fees or taxes by cities and towns, except as permitted by Art. 2B, which provides for the imposition of no tax by cities and towns on the gross receipts •derived from the sale of such beverages. It is from an order dismissing the bill of complaint that Villa Nova has taken this appeal. Villa Nova argues that the lower court was in error (i) in failing to find that Art. 81, § 402 is unconstitutional; (ii) in failing to pass on the legality of Chap. 755 of the Laws of 1969; and (iii), in failing to find that ■Chap. 755 is unconstitutional.

We shall affirm the order ■dismissing the bill of complaint. (i) Art. 81, § 402, as amended by Chap. 161, § 2 of the Laws of 1969, Admissions and Amusement Tax—Levy and amount, provides: “There shall be levied, collected and paid a tax at the rate of four and one-half per centum (41/2 %) of the gross receipts of every person, firm or corporation derived from the amounts charged for (1) admission to any place, whether such admission be by single ticket, season ticket or subscription, (2) admission within an ³⁸⁵ enclosure in addition to the initial charge for admission to such enclosure, (3) the use of sporting or recreation facilities or equipment, and (4) admission, cover charge for seats or tables, refreshment, service or merchandise at any roof garden, cabaret or other similar place where there is furnished a public performance when payment of such amounts entitles the patron thereof to be present during any portion of such performance. The term ‘roof garden or other similar place,’ shall include any room in any hotel, restaurant, hall or other public place where music or dancing privileges or other entertainment, except mechanical music, radio or television, alone, and where no dancing permitted, are afforded the patrons in connection with the serving or selling of food, refreshment or merchandise. It is further provided that this section shall not apply to bowling alleys or lanes.” Villa Nova mounts its attack on the constitutionality of § 402 in a succinct fashion: “Article 81, Section 402, subtitle ‘Admissions and Amusement Tax’, imposes a tax on admissions and amusements.

It operates in varied forms. Theaters, ball parks, skating rinks and others who charge a direct admission fee are required to pay a tax on the gross receipts from such admission charges. They pay no tax on the receipts from the sale of food, drink, souvenirs or other merchandise customarily purchased incident to attendance at theaters, ball parks or the like. Cabarets, on the other hand, such as that operated by Villa Nova, although taxed under the same general scheme of raising revenue by imposing a tax on admissions and amusement, are required to pay a tax on gross receipts derived not only from admission fees, ³⁸⁶ even where one is charged, but also from food and drink sold while entertainment is furnished. “Thus, the law distinguishes between the taxpayers upon whom the tax is imposed.

This difference in treatment creates a sub-classification of taxpayers, among whom is the Villa Nova, who are required to pay their tax calculated on an entirely different basis than others taxed by the same taxing measure. “The disparity in the application of the tax, it is submitted, demonstrates a hostility and oppressiveness against the operators of cabarets, in violation of the constitutional requirement of due process of the law and denies them the equal protection of the law — rights guaranteed in both the State and Federal Constitutions, Article 23, the Declaration of Rights, Maryland Constitution; Fourteenth Amendment to the United States Constitution.” It is quite apparent that § 402 is structured in a fashion strikingly similar to § 1700 (e) (1) of the Internal Revenue Code of 1939, as amended, 26 U.S.C. § 1700 (e) (1), which imposed the federal cabaret tax, since repealed, and provided in part: “A tax equivalent to 20 per centum of 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. 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 serv ³⁸⁷ ing or selling of food, refreshment or merchandise.” The federal tax statute was before the courts.in Geer v. Birmingham, 88 F. Supp. 189 (D. Iowa) rev’d, 185 F. 2d 82 (8th Cir. 1950) and more recently in Jones v. Fox, 162 F. Supp. 449 (D. Md. 1958). What Judge Watkins said in the latter case is particularly apposite here: “* * * A tax on admissions alone was unsatisfactory in that it did not reach those establishments which, while offering entertainment, did not charge an admission fee but rather derived their revenue from the sale of food and drink. Therefore, Congress decided to treat a certain percentage of the gross receipts of such establishments as an admission fee and apply the admission tax to such percentage.” and then quoted from Geer v. Birmingham: “ ‘Thus, from its inception, the admissions tax was imposed upon the general field of entertainment, which was further subdivided for purposes of the imposition of the tax into two different categories because of the nature of the entertainment subject to the tax.

On the one hand was that form of entertainment to which a direct admission charge was made upon the patrons, as is the case with theaters, skating rinks or the like, and on the other hand that form of entertainment to which no admission charge as such was made but rather the charge for admission was included in whole or in part in the price paid by the patron for refreshment, service or merchandise. “What are commonly known as cabarets” comprise this second category.’ (Geer v. Birmingham, 88 F. Supp. 189, 197 ).” (Emphasis supplied by the Court.) Jones v. Fox, 162 F. Supp. at 460 . ³⁸⁸ While admittedly the question of the equal protection guaranties of the Fourteenth Amendment was not raised in Jones v. Fox, we have relied in the past on the Supreme Court’s statement in Allied Stores of Ohio, Inc. v. Bowers, 358 U. S. 522, 526-27 , 79 S. Ct. 437 , 3 L.Ed.2d 480 (1959): “* * * ipjjg grates have a very wide discretion in the laying of their taxes. When dealing with their proper domestic concerns, and not trenching upon the prerogatives of the National Government or violating the guaranties of the Federal Constitution, the States have the attribute of sovereign powers in devising their fiscal systems to ensure revenue and foster their local interests. Of course, the States, in the exercise of their taxing power, are subject to the requirements of the Equal Protection Clause of the Fourteenth Amendment. But that clause imposes no iron rule of equality, prohibiting the