MICHIE, District Judge.
This opinion is intended to supplement my earlier decision of October 15, 1965 in this matter, 246 F. Supp. 349 (W.D. Va. 1965), where, inter alia, I held that I could not invoke my equity powers to mitigate the harshness of a statutory forfeiture.
The claimant Edwards now urges that the device seized at the Lee-Hi Truck Stop, Route 5, Lexington Virginia, and described as:
One (1)
Bally Circus Queen Coin-Operated Gaming Device, Serial No. A1941, containing $8.55 in coin
was an "additional machine" upon which the Form 11-B and tax was not due at the date of seizure. The evidence shows that there was another properly licensed coin-operated gaming device in operation on the premises and that the machine in dispute had been sent there as a replacement but since the repairman was able to repair the properly licensed machine on the premises, the replacement was not required. However, the evidence further shows that the repairman left this replacement machine, which then became an additional machine, at the request of the owner of the premises and that the claimant forwarded a Form 11-B to the owner within a couple of days thereafter.
Claimant's position is that the requirement of filing a return and paying the tax in advance of the use of the machine applies only to the first return on any place or premises and that in the case of an installation of an additional machine on the same premises a return need not be filed before it is placed in operation. With this contention I cannot agree.
Section 4461(a)(2) of the Internal Revenue Code imposes a $250 tax on the person who maintains for use or permits the use on his premises of a coin-operated gaming device. Furthermore, there is a $250 tax imposed by § 4461(a)(3) per year on each additional device so maintained or used. While the tax is on the person described in § 4461 rather than on the machines themselves, and payment of the tax is a condition precedent to such person's right to carry on the business of so maintaining the devices, Voglino v. United States, 253 F.2d 794 (4th Cir. 1958), the tax liability is computed on the basis of the number of machines so operating or maintained for operation on the premises. See Reg. § 45.4461-1, note 1, infra.
Subsequent to the seizure complained of here, Congress amended section 4461 to exclude amusement devices. 79 Stat. 148 (1965), 26 U.S.C.A. § 4461 (1965). As a result the subsections were redesignated; section 4461(a)(2) became 4461(a)(1) and section 4461(a)(3) became 4461(a)(2). In addition, sections 4462 and 4901 were also amended at the same time merely to reflect the change in section 4461. References in this opinion, however, are to the prior subsection designations, infra, note 2, which were in force on the date of seizure.
The applicable statutes and regulations at the time of the seizure complained of herein are set forth in the margin.
The following statutes and applicable regulations are taken from 1961-1 CUM. BULL. 534-35, 604, 619-20.
The applicable regulation § 45.4461-1 states that liability is incurred in respect to each coin-operated device. This regulation goes on to impose an additional liability for each machine that is later brought on the premises in a capacity other than as a replacement. From the wording of this regulation it is clear that the machine in question before me now was in fact an "additional machine," as defined by that regulation. The question now becomes one of when the return on Form 11-B and the tax were required to be filed and paid, respectively, on this machine.
While § 4901 of the Internal Revenue Code provided that "no person shall be engaged in or carry on any trade or business" before he had paid the special tax, the applicable regulation § 45.4901-1 interpreted the statute as meaning that "no person shall maintain for use or permit the use of" a coin-operated amusement or gaming device until he has filed a return on Form 11-B and paid the special tax imposed by § 4461(a)(2).
Even though § 4901 refers to the tax levied under § 4461(a) (2), I find that this encompasses additional gaming devices which are taxed under § 4461(a)(3). The condition precedent of filing the return and paying the tax is imposed only on coin-operated gaming devices subject to the $250 tax and not on coin-operated amusement devices subjected to a $10 tax, the latter category having until the end of the calendar month of first use to comply. Since § 4461(a)(2) imposes the $250 tax on all gaming as opposed to amusement devices it was quite logical for § 4901 to refer to the gaming device provision rather than to § 4461(a)(3) which relates to both amusement and gaming devices. It is the owner of the premises upon which the machines are maintained or permitted to be maintained for use who is taxed and not the machines, though the amount of tax is calculated according to whether the machine is an amusement or gaming device and how many are so maintained or permitted to be maintained. See Reg. § 45.4461-1, note 1, supra.
As a result it would seem clear that the additional gaming device here in question would come within the purview of regulation § 45.4901-1 regarding the condition precedent to maintaining or permitting the maintaining, for use of such a device.
Claimant further argues that in light of recent amendments the additional device in question was not covered by the regulations in effect at the time of the seizure.
Subsequent to the seizure of these machines the Commissioner in T.D. 6774, 1964-2 CUM.BULL. 458, 459 amended the regulations relating to the payment of the tax and the time for filing returns in the cases of the coin-operated gaming devices. In doing so he stated that the purpose of the amendment was merely to clarify the existing regulations. These amended regulations are set out in the margin below.
In particular, the present Regulation § 45.6071-2 clearly indicates that in the case of an additional coin-operated gaming device a new Form 11-B must be filed and the special tax must be paid before such additional device can be maintained for use or permitted to be used. This is also provided in the amended Regulation § 45.4901-1.
After a careful study of the statutes and regulations and counsel's arguments, I find that the amended regulation relating to § 4901 did not change the import of the regulation as it existed at the time of the seizure. I agree with the Commissioner that it served merely to clarify the existing regulation. The import of that prior regulation § 45.4901-1, supra, note 1, was that no person could maintain for use or permit the use on his premises of a coin-operated gaming device until he had filed a return Form 11-B and paid the special tax imposed thereon.
It is important to note that the Internal Revenue Code of 1939, § 3271 required that as a condition precedent to maintaining gaming devices, the special tax imposed thereon be paid "in the manner provided in this chapter." However, the following section in the chapter, § 3272, stated that it was the duty of the special taxpayer to file his return and pay the tax not later than the last day of the calendar month in which the special tax liability commenced. These two provisions were construed as allowing the taxpayer until the last day of the month in which to file his return and pay his tax even though tax liability accrued at the commencement of business. Farmer v. United States, 128 F.2d 970 (10th Cir. 1942). However, in 1954 Congress omitted the contents of § 3272 from the Internal Revenue Code though it retained § 3271 except for the phrase, "in the manner provided in this chapter." This is the present section 4901. The import of the legislative action would seem to be that Congress intended to require the payment of the tax as a condition precedent to maintaining a gaming device for use and thereby legislatively overruled Farmer v. United States, supra. See United States v. Clare, 2 F. 55 (E.D.Pa. 1880).
Furthermore, the use of the phrase "first return" in the prior regulation § 45.6071-2, supra, note 1, referred to the first return on each machine regardless of whether it was the original or an additional machine and this view is strengthened by the reference in the regulation to Regulation § 45.4901-1. A reading of both the prior and present regulation § 45.6071-2 shows that the purpose of the regulation has been and still is to put the filing of returns and payment of the special tax on an annual basis running from July 1-June 30. Since it cannot be expected that machines will be placed in operation only in July, it therefore became necessary to provide means by which a taxpayer could phase into the annual reporting system. This is exactly what § 45.6071-2 purports to do by providing that the first return shall cover from the first day of the month in which the particular machine was placed in operation until the following June 30th.
Since I find that as a matter of law the tax was due on the device at the time it was first maintained or permitted to be used on the premises, the forfeiture will be enforced. Any question as to the clarity or misleading nature of the regulations must be addressed to the Secretary in an administrative proceeding as outlined in my prior opinion in this matter, since it is without the jurisdiction of this court to remit a forfeiture of a coin-operated gaming device.
An order will be entered accordingly.