Opinion
No. 42023.
November 4, 1935.
Herman T. Reiling, of Chicago, Ill. (KixMiller, Baar Hoffman, of Chicago, Ill., on the brief), for plaintiff.
Fred K. Dyar, of Washington, D.C., and Frank J. Wideman, Asst. Atty. Gen., for the United States.
Before BOOTH, Chief Justice, and GREEN, WHALEY, WILLIAMS, and LITTLETON, Judges.
Action by the Century Club, a corporation, against the United States.
Judgment for plaintiff.
This case having been heard by the Court of Claims, the court, upon the evidence adduced, makes the following special findings of fact:
1. Plaintiff is a corporation organized under the laws of the state of Michigan in the year 1901 and located in the city of Muskegon, Michigan.
Article 3 of its articles of association reads as follows:
"The purpose of this association shall be to promote social intercourse among its members and to provide for them the convenience of a clubhouse."
2. During the period from January 1, 1927, to and including December 31, 1930, plaintiff paid to the collector of internal revenue, Detroit, Mich., a total of $5,325.70 as taxes on dues and initiation fees of its members under the provisions of section 501 of the Revenue Act of 1926 (26 USCA § 950 note) and section 413(a) of the Revenue Act of 1928 (26 USCA §§ 950- 952) at the dates and in the amounts shown by the table below:
1927 — January 31 ............ $71.50 June 10 .............. 1,151.50 July 11 .............. 44.50 August 18 ............ 23.50 September 13 ......... 3.00 November 3 ........... 5.75 November 14 .......... 10.50 December 12 .......... 5.00 1928 — January 31 ............ 11.50 February 29 .......... 592.00 March 28 ............. 243.00 April 23 ............. 79.00 May 31 ............... 129.00 June 18 .............. 74.00 July 26 .............. 58.00 August 30 ............ 50.00 September 15 ......... 25.00 December 11 .......... 38.50 1929 — February 28 ........... 82.00 March 30 ............. 117.50 April 29 ............. 117.00 June 1 ............... 114.00 June 13 .............. 134.50 July 22 .............. 131.00 August 14 ............ 112.00 October 1 ............ 116.00 October 24 ........... 105.50 November 30 .......... 138.50 1930 — January 2 ............. 105.00 February 8 ........... 123.00 February 28 .......... 144.60 March 21 ............. 114.50 April 30 ............. 111.50 May 31 ............... 134.00 June 16 .............. 110.50 July 31 .............. 90.00 September 2 .......... 138.50 October 7 ............ 92.50 October 31 ........... 128.00 November 18 .......... 146.00 December 19 .......... 23.35 1931 — January 5 ............. 81.00 _________ Total ................. $5,325.70
3. On January 14, 1931, plaintiff filed a claim for refund with interest on the amount of taxes so paid. The basis of the claim for refund was that plaintiff was not a social club or organization within the meaning of the taxing acts. The claim for refund was, by letter from the Commissioner of Internal Revenue dated January 23, 1931, to the plaintiff, denied on the ground that plaintiff was a social club or organization.
4. Plaintiff's by-laws provided for the usual set-up of a club with the usual officers and board of directors. The membership of the club was limited to 250, exclusive of honorary and nonresident members. Membership was secured through application to and vote of the board of directors. Since 1928, the initiation fee has been $25 and the annual dues $60.
5. The plaintiff owned its own club house subject to a mortgage. The club house was built about 1900. Prior to 1930, the land and building were carried on the books at approximately $59,000. In 1930 the land and building were appraised at $115,868 ($50,000 for the land and $65,868 for the building), and this amount was shown on the books. The furniture and fixtures were appraised at $17,666.15 in 1930 and were previously carried on the books at approximately $26,000. At the close of the period in question, there was a mortgage on the land and building of $27,500. The club house is of brick veneer construction and consists of two and one-half stories with center entrance, and was the only club house in Muskegon.
The basement of the building was given over to a men's washroom, quarters for waiters, storage space, and two bowling alleys.
The entrance leads to the main floor, which was given over to a corridor 10 feet by 46 feet; a reception room 14 feet by 18 feet; a small ladies' room; a men's lounge room, 18 feet by 34 feet; dining room, 18 feet by 54 feet; four small dining rooms; a buffet; steward's office and cigar counter.
The second floor was given over to a lounge for men, 14½ feet by 46 feet; billiard room, 26 feet by 46 feet, containing two pool and two billiard tables; and three connecting card rooms, a total area of 16 feet by 46 feet, containing five card tables.
The pool and billiard tables on the second floor during the period in question were in poor repair, practically never used, and were discarded and sold in December, 1931. The card room was seldom used except during the lunch hour, when it was used for about an hour ordinarily by 6 or 8 persons. The bowling alleys in the basement were closed during the winter 1929-1930 and when open other years during winter months were used by 8 or 10 members, which included 5 or 6 old men, who constituted the chief ones using these alleys.
The lounge rooms on the main and second floors were equipped with comfortable heavy leather chairs and davenports and a few writing tables.
6. During the period in question, the club served luncheon every working day and dinner during 9 months of the year. It served from 20 to 40 luncheons daily and from 2 to 6 dinners, and often no dinners were served. The club house was open from 9 a.m. to 9 p.m. Tickets were signed by members for cigars, meals, and other services in the club, and a service charge of $0.25 per person was made for the use of private dining rooms. Some of the activities of the club operated at a loss. The chief source of income was the dues of the members.
7. The plaintiff regularly subscribed to some periodicals and newspapers, including the Saturday Evening Post, business magazines, the Literary Digest, automobile papers, the Journal of Commerce, and the Chicago Tribune.
8. The membership of the club consisted of business and professional men and included most of the leading citizens of Muskegon, which is a city of approximately 40,000. The chief use of the club house was to provide a meeting place for business men at noon and committee quarters for the chamber of commerce and other civic bodies of Muskegon. The café facilities were the chief attraction for such meetings.
9. In Muskegon there was a chamber of commerce with a membership of 800. Practically all of the prominent members of the chamber of commerce were members of the plaintiff, and practically all the members of the plaintiff were also members of the chamber of commerce. The chamber of commerce had no quarters except an office for its secretary and the committees of that organization usually met at the club house of plaintiff. The chamber of commerce had the privilege of using the club house for committee meetings whenever it so desired. When the chamber of commerce used the club house, it made the arrangements and was billed for the meals served to its committees. There were at least two such meetings of the chamber of commerce every week.
10. Nearly every civic organization of Muskegon held its committee or board of directors meetings at the club house. In addition to the chamber of commerce, these included the following: The employers' association, community chest, Kiwanis Club, Exchange Club, Lions Club, Rotary Club, country club, and real estate board. It was not necessary for any member of the committee or board which held its meetings at the club house to be a member of plaintiff. Any group could arrange for a dining room for any meeting that such group might desire to hold.
11. During the years in question the average resident membership of plaintiff was about 230. There were also about 80 nonresident members, representing traveling men or representatives of manufacturing industries in Muskegon, who had the privileges of the club house on payment of $10 semiannually in advance. Nonresident members utilized the club house as a place to entertain guests.
12. The plaintiff took no active interest in civic projects as a club and has never passed any resolution in favor of any civic project, but its facilities were available for committees of other organizations on such matters.
The club had no library. It had no gymnasium or other athletic facilities except the bowling alleys and pool and billiard tables. It held no card tournaments or other tournaments of any kind. It gave no banquets, dances, musicals, parties, or other entertainments. It had no entertainment committee. There were no bedrooms in the club house. The club made no effort to induce young men to join the club and did very little soliciting for membership.
Attendance of ladies at the club was permitted. They seldom attended and when they did were usually accompanied by male escorts, members of the club.
At the annual meeting of the club a dinner was served to the membership, at which reports were made and officers were elected.
13. The predominant purpose of the club was not social and the card rooms, billiard and pool tables, and bowling alleys were in no substantial degree material to plaintiff's existence or its prosperity.
Conclusion of Law.
Upon the foregoing special findings of fact, which are made part of the judgment herein, the court decides, as a conclusion of law, that the plaintiff is entitled to recover the sum of $5,325.70, with interest as provided by law.
It is therefore ordered and adjudged that the plaintiff recover of and from the United States the sum of $5,325.70, being the total amount of the payments specified in finding 2, together with interest at the rate of 6 per cent. per annum on each of the several payments from the dates severally specified in connection with each payment in finding 2 to such date as the Commissioner of Internal Revenue may determine, in accordance with the provisions of subsection (b), section 177, of the Judicial Code, being a part of the Revenue Act of 1928 (§ 615(a), 28 USCA § 284(b).
The plaintiff is a corporation which operates a club house. Its members constitute a club and pay initiation fees and dues for the privilege of being members and using the facilities provided by the club.
This action is begun to recover the sum of $5,325.70 with interest, which the plaintiff alleges has been wrongfully assessed and collected from it. The issue is whether the plaintiff is a social organization and for that reason subject to the tax.
In one of the articles of association of plaintiff it is stated:
"The purpose of this association shall be to promote social intercourse among its members and to provide for them the convenience of a club house."
The presumption in the first instance would be that this purpose is carried out and that the plaintiff is a social club. The application of the law, however, does not depend so much on what is stated in the articles of association of any club as it does upon its actual operations. In other words, what is stated in the articles of association is not conclusive as to whether the tax applies, and any presumption which would arise from statements contained therein may be rebutted by other evidence.
The tax applies when the club is a social, sporting, or athletic organization. It is quite clear that the plaintiff is not a sporting or athletic organization, but it is very difficult from the evidence to classify it and say what kind of an organization it is. Its actual purpose, and the only purpose it had which was carried out, was to provide a meeting place for business men and committee quarters for the chamber of commerce and other civic bodies of the town in which it was located. It maintained a café, which, although not extensively patronized, added to the attractiveness of the club house as a convenient meeting place. In the sense that we ordinarily use the term "social function," the evidence shows that the club carried on no social functions whatever. It is quite probable that when its members met there was more or less of ordinary social conversation, but we think that the term "social organization" as used in the statute had reference to something more than this. In ordinary conversation, such an organization would not be spoken of as a social club. There were some card rooms, pool and billiard tables, and a bowling alley. How much the card rooms were used is not disclosed by the evidence, but the billiard and pool tables were out of repair and being seldom used were finally discarded. The bowling alley was also little used. None of these matters added in any material way to the attractiveness or maintenance of the club.
We think that it was not the intention of Congress to apply the tax in such a case as we have before us.
Plaintiff is entitled to recover the amount of the taxes paid with interest as provided by law. Judgment will be rendered accordingly.