Opinion
No. M-428.
March 5, 1934.
G.F. Snyder, of Washington, D.C., 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, LITTLETON, WILLIAMS, and WHALEY, Judges.
Suit by the University Club of the City of Washington, in the District of Columbia, against the United States.
Judgment for the defendant.
Plaintiff brought this suit to recover a tax on club dues and fees paid during the period January, 1926, to June, 1930, amounting to $24,478.72, together with interest from the dates of payment.
Plaintiff claims that it is not a social club, and that the tax in question was illegally exacted.
Special Findings of Fact.
1. Plaintiff was incorporated under the laws of the District of Columbia February 15, 1904. The certificate of incorporation sets forth that "the particular business and objects of this corporation are educational, literary, musical, scientific, for the promotion of the arts, and for mutual improvement." Section 2 of the by-laws of the club provides that "the object of the club shall be to promote science, literature, and art, and to maintain a clubhouse for purposes of social intercourse amongst its members and for mutual improvement."
2. During the period from January, 1926, to June, 1930, inclusive, plaintiff paid a total tax of $24,478.72 on dues and fees of its members as a result of the ruling by the Commissioner of Internal Revenue that it was a social club within the meaning of the Revenue Acts of 1924 and 1926 imposing a tax upon membership dues of social, sporting, or athletic clubs ( 26 USCA § 872 note). A claim for refund was filed August 7, 1930, for the entire tax paid on the ground that the club was not a social club within the meaning of the revenue acts or the regulations of the Treasury Department. The Commissioner rejected the claim March 14, 1931, adhering to his previous decision that plaintiff qualified as a social club, holding that "the social features form a material purpose of the organization and that it qualifies as a social club or organization within the meaning of section 413 of the Revenue Act of 1928 [ 26 USCA § 872], and corresponding sections of previous revenue acts."
3. The qualifications for membership, as provided in the by-laws, are at least two years' attendance at an accredited university or college, or such persons who, in the estimation of the board of governors, are distinguished in connection with literature, art, science, or public service. The classes of membership are: Resident, associate, special, resident junior, resident Army and Navy, nonresident Army and Navy, life, and honorary. The initiation fee for resident members is $50, the annual dues, $80. The initiation fee of nonresident members is $15, and the nonresident dues, $15. The total annual membership of the club during the years here involved has been, as of January 1 of each year, as follows:
1924 ......................... 1,554 1925 ......................... 1,556 1926 ......................... 1,520 1927 ......................... 1,465 1928 ......................... 1,361 1929 ......................... 1,288 1930 ......................... 1,589 1931 ......................... 1,348
The total membership for 1931 was made up of —
Resident members ............ 582 Nonresident ................. 524 Associate ................... 39 Resident Army and Navy ...... 51 Nonresident Army and Navy ... 39 Life members ................ 8 Honorary members ............ 74 Resident junior ............. 10 Special ..................... 21
4. The by-laws further provide for an executive committee; a committee on literature, art, and decorations; and an entertainment committee. The annual reports for 1926 to 1932 show, in addition to the above, that the club had committees on auditing and finance; investment; cards, pool, and billiards; dancing; club facilities; restaurant; fellowship; club adjustment; ping-pong; building; and publication. These committees are varied somewhat over a period of years, but, as of February 1, 1930, the standing committees were executive; auditing and finance; cards, pool, and billiards; literature, art, and decoration; dance; entertainment.
5. The house rules of the club provide:
"(1) The clubhouse is open from 7:30 a.m. until 1 a.m. From the hour of closing until that of opening, admittance will be refused except to those members and guests who occupy rooms.
"(2) The dining rooms will be open daily from 7:30 a.m. to 9:30 p.m., and a buffet service provided from 9 a.m. until midnight.
"(3) When requested by a member, the secretary will issue a guest card extending the privileges of the clubhouse for a period of two weeks. Such cards shall not be issued except to nonresidents of the District, as defined by the club bylaws. Guest cards will not be extended and will not be issued to the same individual oftener than once in six months. The right to withdraw such guest cards for proper cause is reserved.
"(4) A member may personally introduce visitors for a single day into the clubhouse, but the same person must not be introduced oftener than once in 30 days. Such visitors will not be permitted to make purchases. The name of each visitor so introduced must be entered in the visitors' book by the member introducing him. * * *
"(23) Games are permitted only in the club rooms set apart for the purpose. No game which the executive committee may at any time declare to be objectionable shall be permitted in the clubhouse. The rules governing games shall be prescribed by the executive committee and shall be posted in the rooms set apart for such purposes. * * *
"(27) A reception room and dining room are provided for ladies; other portions of the club are reserved for the exclusive use of members, except upon authorized special occasions.
"Upon request of a member, cards extending privileges of the rooms designated will be issued to the ladies of his family or household. Upon request the cards must be shown to the attendant at the door. The name of the guest and the name of the member at whose request the card was issued shall be registered by the door attendant in the book kept for this purpose."
6. The year book of the plaintiff describes the club property as follows:
"The University Club of Washington was founded in 1904. The attractive old residence at Sixteenth and K Streets, which was its temporary home, was soon outgrown and the present clubhouse opened on New Year's Eve, 1913.
"This dignified, well-proportioned building faces McPherson Square, one of the small parks so characteristic of Washington. The large reading room, the spacious and beautiful lounge, the library, the large and small dining rooms, like the spacious entrance hall, and the beautiful open stairway, which extends to the dining-room floor, secure open spaces and airiness, an important matter in Washington. The club also provides rooms for newspapers and periodicals and for cards and billiards.
"Books are much in evidence in the club, and the library is constantly increasing in size and importance. There is also a steady growth in the club's small but interesting collection of pictures and portraits, headed by the fine contemporary portrait of Washington.
"Besides these provisions for general and special uses, the University Club also has two stories of suites and single rooms for members and guests, and so much in demand are they that the three additional stories for which the original clubhouse plan calls are now very urgently needed.
"Situated within a few squares of several other clubs and equally near the White House, the United States Treasury, the State, War, and Navy, and other public buildings, and with Lafayette Square and three other of Washington's beautiful small parks almost as near, the club is in the heart of the most interesting section of the city."
The clubhouse is located at the northwest corner of Fifteenth and Eye streets, Washington. It was built by the University Club Building Company, a Virginia corporation, and was financed through a bond issue of $150,000 and through the sale of stock in this corporation. The investment involved is approximately $300,000. The club occupies the premises under a lease, pays no rent, and assumes the payment of taxes, insurance, and upkeep, and the redemption of the outstanding bonds. The club building embraces six floors and a basement. The basement contains a billiard room with two pool tables and one billiard table; a card room, which has eight or nine card tables; and a barber shop. The remainder of the space is used for servants' quarters, boiler room, storage room, and servants' locker room.
The first floor contains a room known as the alumni room, which is also used as a newspaper room and is available for the use of any alumni or college fraternity organization in the District having five members of the plaintiff club; a small room off the lobby used for radio reception, and which also contains a ping-pong table; office space, cigar counter, coat and wash rooms; and a ladies' entrance on Eye street with a wash room and a reception room.
The second floor consists of a lounge extending the entire length of the building on the Fifteenth street side; a library on the Eye street side containing approximately 5,000 volumes, with an overflow in the lounge room at the north end; a committee room; and a buffet counter now behind a locked grill.
On the third floor there is a dining room on the south side of the building accommodating approximately eighty persons. This is commonly known as the "Harvard Room," as it has been used by the local Harvard Alumni Association for its weekly luncheons. On this floor there is also a small luncheon room seating about eight, and, occasionally, it is used for a card room. On the north side of the building there is a room used for board meetings and other similar purposes.
The fourth floor consists of the main dining room for members, two smaller dining rooms ordinarily assigned for the use of ladies, a kitchen, storage rooms, and refrigerating closets.
On the fifth and sixth floors there are fifteen bedrooms each.
7. The club provides every facility available to guests, as at first-class hotels, and, in addition, opportunities for intimate association with friends and companions. Certain members make the club their home and find there all opportunities for comfortable living, recreation, and contact with their fellows. During the winter months eight or ten rooms are occupied by regular residents, and the balance are used for transients. During the summer months, when fewer transients are in the city and when resident members' families are absent from the city, many regular members make the clubhouse their home.
The restaurant facilities are one of the most popular features of the club. An average of twenty breakfasts are served daily, one hundred and thirty luncheons, and fifty dinners. Approximately forty meals are served daily in the ladies' dining room. Husbands and wives utilize the dining room facilities to a substantial extent for social purposes through dinner parties.
Wives of members make substantial use of the facilities of the club through the special accommodations afforded them, and, in addition, on Thursday and Sunday afternoons and evenings, the lounge room is open to ladies. Wives of members may bring guests to the club, give formal luncheons, and play bridge, and recently arrangements have been made for ladies to play cards in the south room on the third floor.
Ladies attend the monthly entertainments, except those exclusively for men, and the five or six regular dances held by the club during the year.
8. The club's library consists of between 5,000 and 6,000 volumes made up of a reasonably comprehensive collection of books of science, reference, biography, history, and standard classical literature. About 15 per cent. of the volumes consists of current literature. The library room is about 16 × 30 feet, and its growing needs have caused an expansion into a part of the lounge. During the period involved the club subscribed to about fifty magazines and fifteen out-of-town newspapers in addition to the local newspapers, of which over forty copies are taken during the week and twenty-five copies on Sundays. Some of the magazines of a scientific or similar nature are gifts of members.
9. The activities of the club of an entertaining or recreational type are made to suit the demands of the members so far as possible. The club seeks expression from its members concerning these matters, and, as far as practicable, the express purpose has been met. These activities have been fairly uniform over a period of years. Under a plan for improved facilities through additions to the clubhouse, athletic equipment and greater space for gatherings were contemplated. This plan was put forward to attract additional members, and it was deferred only because of difficulty in financing. The annual reports show that a lively interest has been taken in billiards, pool, and, more recently, in ping-pong, and this interest is emphasized in the various club bulletins and announcements. The official club bulletin devotes much of its space to matters of entertainment and amusement.
The club provides monthly entertainment, frequently of a musical nature, sometimes a lecture, which may be illustrated, and the subjects treated cover a wide field, embracing politics, travel, architecture, aviation, and other topics. The lectures and musical programs are of a high quality of merit and of various degrees of seriousness. At the evening entertainments the attendance averages about two hundred. About seven dinner dances are regularly held each year through the season from October until early spring. Attendance at these dances has averaged approximately one hundred and twenty-five guests over a period of years. The evening entertainments are one of the most popular attractions of the club. The club holds pool tournaments, and the bulletins indicate that a lively interest is taken in such events. Since its introduction ping-pong has been very popular and club tournaments have been held, and there have also been contests between teams representing the plaintiff and other organizations. Bridge and other games are played during the period after luncheon and throughout the evening. While cards are usually played in the card room, a small room is available for private games. Especial interest is taken in card playing at the club. The club sells the cards twice: New decks for 25 cents; old decks for 15 cents; the average price being 20 cents a deck. The club sells approximately thirty decks a day, including Sundays, or 10,000 decks annually. During the period here involved the revenue derived by the club from this source ran from $1,779 to $2,146 annually.
The club holds an annual field day at some country club, open to all members, where games are played and dinner is served.
10. Plaintiff has consistently catered to alumni associations and college fraternity groups. The alumni room is made available for such meetings, and the so-called Harvard Room is at the disposal of such groups for luncheons and the dining room for dinners, and, at times, the lounge is made available for gatherings. A committee on alumni relations functions, the object of which is to increase the friendship of various alumni associations and college fraternities. One of the original purposes in the organization of the University Club was to provide a home and headquarters for alumni groups. The club rooms and the restaurant facilities are extensively used by such organizations. Alumni organizations and college fraternities make up the major part of all organizations using such facilities.
11. The meetings of these organizations are largely for the purpose of renewing college and fraternity friendships and for good fellowship. Each organization is free to conduct its own type of entertainment.
Very substantial revenue is received by the club by reason of these meetings, through the restaurant facilities. Alumni organizations receive returns of athletic contests in the club lounge. The facilities of the club are also extended to local organizations of a civic, religious, or charitable nature, and groups from the various government departments meet at the club for conference and for luncheons.
12. The income of plaintiff for the years 1926 to 1930, inclusive, has been derived from the following sources and in the following amounts:
---------------------------------------------------------------------------------------------------------------- | 1926 | 1927 | 1928 | 1929 | 1930 | Total -----------------------------|-------------|-------------|-------------|-------------|-------------|------------ Dues ....................... | $ 44,225.37 | $ 53,240.98 | $ 53,693.79 | $ 49,891.69 | $ 62,435.63 | $263,487.46 Restaurant ................. | 88,921.38 | 75,068.69 | 68,179.08 | 65,611.24 | 79,736.21 | 377,576.60 Rooms ...................... | 18,679.29 | 16,612.07 | 15,430.84 | 15,327.12 | 18,088.22 | 84,057.54 Cigar stand, including candy | 9,569.24 | 8,000.29 | 6,970.16 | 6,865.92 | 6,723.22 | 38,128.83 Telephone .................. | 1,777.00 | 1,986.10 | 2,238.30 | 1,862.54 | 2,579.21 | 10,443.15 Cards ...................... | 1,904.25 | 1,770.15 | 1,927.15 | 2,146.12 | 2,117.55 | 9,865.22 Billiards .................. | 855.48 | 766.70 | 784.62 | 748.02 | 788.99 | 3,943.81 Buffet ..................... | 1,528.06 | 1,368.72 | 1,310.85 | 1,005.11 | 1,026.14 | 6,238.88 |-------------|-------------|-------------|-------------|-------------|------------ | 167,460.07 | 158,813.70 | 150,534.79 | 143,457.76 | 173,415.17 | 793,681.49 ---------------------------------------------------------------------------------------------------------------- 13. The social activities of the club are extensive and form a material part in the furtherance of the life of the organization. These social activities are not merely incidental to the educational work of the club, but are substantial and necessary features of the club, and are so essentially a part of its activities as to constitute them a moving force in its maintenance.This case is controlled by the decisions of this court in Army Navy Club of America v. United States, 53 F.2d 277, 72 Ct. Cl. 684; Block Hall, Inc., v. United States, 57 F.2d 918, 74 Ct. Cl. 600; Union League Club of Chicago v. United States (Ct. Cl.) 4 F. Supp. 929, and Phi Gamma Delta Club v. United States (Ct.Cl.) 5 F. Supp. 140.