Opinion
Action by the Union club Company against the United States.
The court, upon the report of a commissioner and the evidence, makes the following special findings of fact:
1. The Union Club Company, plaintiff, is a corporation organized on June 25, 1901, under the laws of the state of Ohio, and is located in the city of cleveland, Ohio. The club had been in existence for many years previous to its incorporation in 1901.
2. Plaintiff's articles of incorporation, in section 3, set forth its purpose as follows: "Third.--Said corporation is formed for the purpose of promoting social intercourse, culture, and intellectual improvement, and means of entertainment, amusement, recreation, enjoyment, and pastime for stockholders and members; and to acquire, purchase, lease, possess, and sell such real estate and personal property as may be necessary to requisite for the purpose of the accommodation and pleasure of the stockholders, members, and their guests, and to do all things incident to a club and the maintenance of a club house."
Article 1 of the Code regulations of the club reads as follows: "This corporation is a social club, organized for the purpose of promoting social intercourse, culture, and intellectual improvement, and for providing means of entertainment amusement, reaction, enjoyment, and pastime for its members and their guests, under the name The Union Club Company. * * * "
Article X of the Code of Regulations reads as follows: "Section 1. The capital stock shall be one thousand five hundred (1,500) shares of common and one thousand five hundred (1,500) shares of preferred stock, each of a par value of three hundred ($300) dollars."
3. Plaintiff for the year 1929 paid taxes in the amount of $24,538.30 on the initiation and membership dues of its members, imposed by section 501 of the Revenue Act of 1926, as amended by section 413(a) of the Revenue Act of 1928 [26 U.S.C.A. §§ 950-952], and for the year 1930 it paid such taxes in the amount of $24,068.03.
4. On February 6, 1933, plaintiff filed a claim for refund in the amount of $24,538.30 for taxes paid for the period beginning February 22, 1929, and ending January 7, 1930, and on December 9, 1933, it filed a claim for refund of $24,068.03, being the amount of taxes paid by plaintiff for the period beginning February 26, 1930, and ending January 14, 1931. The basis set forth in each claim for refund was that plaintiff was not a social, athletic, or sporting club organization, within the meaning of section 501 of the Revenue Act of 1926, as amended.
5. The Commissioner of Internal Revenue disallowed the first claim for refund on February 20, 1934, and disallowed the second claim on July 2, 1934. The disallowance of each claim was based on the ground that the plaintiff, during the period here involved, was a social club or organization within the meaning of section 501 of the Revenue Act of 1926, as amended.
6. During the year 1929 the club had 1,320 members listed as follows: Resident members, 967; nonresident members, 219; junior members, 10; ladies, 117; army and navy member, 1; and honorary members, 6.
During the year 1930, 1,329 members were listed as follows: Resident members, 964; nonresident members, 222; junior members, 5; 5; lady members, 131; army and navy member, 1; and honorary members, 6.
During both 1929 and 1930 practically all the resident members were men actively engaged in a business or profession, most of whom had their offices within four blocks of the club. Members are entitled to extend the privileges of the club to their guests, and the widows and unmarried daughters of deceased members are entitled to use the premises of the club set aside for the use of women, on the payment of one-half the annual membership dues, although they have no voting privilege. The wife and unmarried daughters residing with a member likewise have the privileges of the use of that part of the club given over to the use of the ladies. This use is principally at the lunch hour and occasionally for dinner in the evening. Junior members are those between the ages of 21 and 28, who have been admitted to club membership.
Resident members must reside within a 25-mile radius of the Cleveland public square. Each person on becoming a resident member must acquire one share of the club's common stock, which stock pays no dividend. The annual dues of a resident member are $160; of a nonresident member $60; of junior members and lady members one-half that of resident members. The admission fee is $100 plus the transfer of one share of common stock, which has a par value of $300.
7. The Union Club was originally located just west of Ninth street on Euclid avenue, about two blocks closer to the public square than its present location. It then occupied a large residence known as the Lenter property which, at that time, was in the center of the best residential section of Cleveland. The present clubhouse, completed in 1904, is located at the corner of East Twelfth street and Euclid avenue, about two blocks east of the original clubhouse, and about one-eighth of a mile from the public square. In its early life plaintiff was the social center of Cleveland. The best residential distinct immediately adjacent to the club. However, with the advent of the automobile, the development of urban areas and county clubs and with the great increase in population, the finest homes moved far out of the center of the city, and business absorbed the old residential section.
Until 1910, the Union Club, as the social center of Cleveland, held numerous balls, parties, dances, receptions, coming out parties, annual dinners, and other social events. The transition from a residential district to a business district took place rapidly between 1910 and 1920. With this change, the social life of the city also moved, the former gaiety of life of the club gradually lessened, and the parties and balls formerly held in the clubhouse became fewer. Since 1920, the club has assumed its present character, although formal balls were held in the clubhouse down to 1922, and New Year receptions continued to 1929 and 1930, since which time they have been discontinued. The clubhouse is now surrounded for several blocks by office buildings, hotels, banks, and stores. The residential districts from which plaintiff draws its membership are now mainly located from 10 to 12 miles distant from the club.
8. The clubhouse is a stone building four stories high and a basement. In the rear of the club building is a parking space for members, accommodating about 80 cars, for the use of which members pay a regular charge. In 1930 the value of the building and land was $1,897,710, and the book value of the furnishing was during that year $237,000.
The basement contains a barbershop, carpenter shop, paint shop, engineer's room, storeroom, and timekeeping department. It also contains an assembly room. The barbershop, which is open from 7 a.m. to 7 p.m. has two barbers, a manicurist, and a porter.
The offices of the manager, general offices, checkroom, telephone room, cigar counter, main lounge, ladies' lounge, men's washrooms, ladies' washroom, and a writing room occupied the first floor space of the building during 1929 and 1930. Since the repeal of prohibition the writing room has been converted into a grill room and service bar. The grill room is used for serving drinks and luncheons; a bartender being in service from 9:30 a.m. to 9 p.m. The lounge room is 30x80 feet, and is furnished with leading periodicals and daily papers of the Eastern cities, for which the club in 1930 expended the sum of $1,140. The lounge has a large fireplace, many tables, lamps, davenports, and chairs. It is also furnished with writing desks, and its walls are adored with oil paintings. A cocktail room adjoins the ladies's lounge. This lounge has a woman attendant and is well furnished. It is also provided with periodicals.
On the second floor are eight private dining rooms, a card room, a billiard room, a conference room, men's wash room, and a small library installed in the hall beneath the stairway. The second floor hall is furnished with davenports and easy chairs. Rooms for employees are also found on this floor.
Billiard players are served luncheons in the billiard room, and players are also served luncheons in the card room during the progress of the games. Chess, bridge, and pinochle are played; bridge and pinochle being the more popular games. Cards may also be played in the private rooms. During the year 1929 the club received from the sale of cards $3,883.05 and during 1930 it received from the same source $3,4495.30. The club received from billiards and pool the sum of $1,710.70 in 1929 and the sum of $1,397.13 in 1930. The private dining rooms on this floor each seat from 10 to 20 persons. Both men and women entertain in these rooms; they being used by social groups as well as luncheon parties.
The third floor contains the main dining room, ladies' dining room, kitchen, and pantries. The main dining room accommodates approximately 153 persons at eight large tables and about thirty small tables. This room is now open only for luncheon. During 1929 there were 36,897 lunches served in this room and during 1930 there were 35,331 lunches served there. The ladies' dining room, which is open for the service of breakfast, luncheon, and dinner, has a seating capacity of 72, at 23 small tables. Men are permitted to use the ladies' dining room, either accompanied or unaccompanied by ladies. This is the only room in which breakfast and dinner are served. In 1929 there were served in the ladies' dining room 23,791 lunches and in 1930, 19,429. In 1929 there we served in the ladies' dining room 3,595 breakfasts and 9,904 dinners. In 1930 there were served in the ladies' dining room 2,967 breakfasts and 7,700 dinners. In 1929 the income from all meals served was $209,573.30, and in 1930 it was $191,784.64. The net loss for 1929 was $21,839.97 and for 1930 the net loss was $32,896.91. Plaintiff's uniform loss for meal service has been compensated for by dues, admission fees, rooms, and other minor items of income.
On the fourth floor there are sixteen bedrooms for members, also quarters for the manager an housekeeper. The bedrooms and furnishings compare favorably with hotel rooms in large cities. During 1929 an average of five of these rooms were regularly occupied by members of the club. On an average about one-half of the remaining rooms were occupied by guests and transient members. Rooms rent for $4 and $5 per day. In 1929 they showed a profit of $6,510.50 and in 1930 a profit of $7,403.78.
9. The club has no facilities for athletics or sports; it has no swimming pool or gymnasium; and is not affiliated with any club having such facilities. It has no ballroom, nor is there a room in the club which could conveniently be used for such purposes. It issues no publications other than the statement made to its members as required by the Ohio law. Despite its age, the club building is maintained in excellent condition and impresses one with its luxury.
The principal activity of the club is at its luncheon period. During the years 1929 and 1930 the luncheons served constituted about 80 per cent of the total meals served. Breakfast is the only meal served on Sunday. During the morning hours and after 3 o'clock in the afternoon but few members attend the club, either in the men's or ladies' lounge. The principal use for the card room is during the luncheon period, when players are served their lunch while playing cards. The billiard room is patronized regularly by a group of about 10 persons. The card and the billiard rooms are self supporting and showed and annual profit during 1929 and 1930 of approximately $200. The club's gross income for each of those years, exclusive of dues, admission fees, and discounts earned, amounted to approximately $300,000, about two-thirds of which was derived from the dining room. Although the main use of the club is during the midday period, a substantial use of it is made in the evenings, particularly during the dinner hour. Women use the club a great deal, together with their husbands and families, for entertaining guests. During the period here involved, form 30 to 40 ladies could be found in the tea room in the afternoon. During 1929 and 1930 the plaintiff had slightly more than 100 employees, which included kitchen staff, waiters, bell boys, elevator boys, and maids.
10. Plaintiff has both common and preferred stock. Its common stock pays no dividends, but its preferred stock has always paid 4 per cent. At the present time plaintiff pays no capital stock tax or corporation income tax. In 1933, plaintiff filed a capital stock tax return, claiming exemption because of the fact that on September 6, 1923, the Collector of Internal Revenue at Cleveland had notified plaintiff that it came "within the exemption provided in section 231(9) of the revenue act of 1918, and as such you are exempt form the filing of returns of annual net income."
In 1921 plaintiff filed a claim in abatement of capital stock tax, and for 1920, 1921, 1923, 1924, 1925, and 1926 plaintiff filed capital stock tax returns in which it asserted that it was an "organization for recreation, pleasure," etc. In its claim for abatement, dated October 1, 1921, it so asserted, and in its several capital stock tax returns it asserted its nonliability, inasmuch as it "is a corporation organized and operating for social purposes only and not subject to the capital stock tax."
11. The declared purposes of the club, as set forth in its articles of incorporation and reflected in its code of regulations, are to provide means of entertainment, amusement, recreation, enjoyment, and pastime for its members. Such objectives have continued, subject only to such changes as naturally resulted from the increase in population, the advent of the automobile, and the development of country clubs within the 25-mile radius of the cleveland public square. Prior to these changes the Union Club was beyond question the social center of Cleveland. With the advent of these changes, many of the former social activities of the club were naturally transferred elsewhere, principally to country clubs and the homes of its members. After the change in the residential section of Cleveland, the club still retained its expensive quarters and facilities, and on two occasions its board of directors refused to seriously consider the abandonment of its present commodious quarters for less expensive ones.
The club's repeatedly declared position, at least until 1926, was that it was solely a social club. During 1929 and 1930 it served as a convenient and agreeable meeting place of the leading business and professional men of Cleveland, as well as the members of their families. It furnished those facilities most desirable for friendly intercourse, under pleasant and attractive surroundings, where its members, together with their families and business associates, could meet, dine, relax, and entertain under favorable conditions. It has continued to furnish its members a fine clubhouse, conveniently located, excellent meals, comfortable lounging quarters, the opportunity to play cards and billiards, and other facilities desirable for the entertaining of their professional and business visitors. It has retained all its original advantages as a social club, except such as, because of changed conditions, the members voluntarily elected to transfer to other places. During 1929 and 1930, these factors were important elements in the life of the club. They were not merely incidental, but constituted essential features of its life, which its members have ever since preferred to retain. These features are both material and necessary to the existence of the club.
Upon the foregoing special findings of fact, which are made a part of the judgment herein, the court decides as a conclusion of law that the plaintiff is not entitled to recover; therefore, the petition is dismissed.
Conclusion of Law Paul L. Holden and Harry J. Crawford, both of Cleveland, Ohio (Squire, Sanders & Dempsey, of Cleveland, Ohio, on the brief), for plaintiff.
Fred K. Dyar, of washington, D.C., and James W. Morris, Asst. Atty. Gen. (Robert N. Anderson, Sp. Asst. to Atty. Gen., on the brief), for the United States.
Before BOOTH, Chief Justice, and GREEN, LITTLETON, WILLIMAS, and WHALEY, Judges.
PER CURIAM.
Judgment is rendered against plaintiff for the cost of printing the record herein, the amount thereof to be entered by the clerk and collected by him according to law.
See Army & Navy Club of America v. United States, 53 F.2d 277, 72 Ct.Cl. 684; Wichita Commercial & Social Club Ass'n v. United States, 2 F.Supp. 476, 77 Ct.Cl. 80; Chicago Engineers' Club v. United States, 9 F.Supp. 680, 80 Ct.Cl. 615.