Opinion · United States Court of Claims
Transportation Club of San Francisco v. United States
17 F. Supp. 201
- Type
- Opinion
- Court
- United States Court of Claims
- Jurisdiction
- Federal
- Date
- 1936-12-07
- Topic
- general
WHALEY, Judge. Plaintiff seeks to recover taxes paid upon club dues and initiation fees during the period July, 1929, to November, 1934, inclusive. Two suits are involved but, in view of the identity of the questions presented, they have been consolidated for the purpose of taking testimony and submission to the court. The first suit covers the period July, 1929, to June, 1933, inclusive, and seeks to recover $9,812.75 with interest and the second suit covers the period July, 1933, to November, 1934, inclusive, and seeks to recover $2,653.53 with interest. The applicable statute, section 413(a) oi the Revenue Act of 1928 (26 U.S.C.A. §§ 950-952), which amends section 501 of the Revenue Act of 1926, imposes a tax of 10 per centum of the amount paid “as dues or membership fees to any social, athletic, or sporting club or organization, if the dues or fees of an active resident annual member are in excess of $25 per year.” This provision is practically identical with the corresponding provision (section 701) which appeared in the Revenue Act of 1917 (40 Stat. 319) and which has been repeated in subsequent Revenue Acts.
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- Cited by
- 11 opinions
TRANSPORTATION CLUB OF SAN FRANCISCO v. UNITED STATES, (1936)
17 F. Supp. 201
TRANSPORTATION CLUB OF SAN FRANCISCO v. UNITED STATES.
Nos. 42896, 43052.
United States Court of Federal Claims.
December 7, 1936.
Judgment dismissing the petitions.
This case having been heard by the Court of Claims, the court, upon the evidence and the report of a commissioner, makes the following special findings of fact:
1. Plaintiff is a California corporation which was organized in 1904. It has existed and operated since that time with its location and principal place of business in San Francisco, Cal. Its original articles of incorporation set forth its purpose as being: "To establish a social organization to promote and further the good-fellowship, business interests, and culture of its members; to purchase, acquire, and hold, in the City and County of San Francisco, State of California, property, real and personal, suitable for the purposes of said corporation; to borrow money and to give evidences of indebtedness therefor; to lease, sell, mortgage, convey in trust, release from trust or mortgage, use, take possession of, and enjoy in fee-simple, or otherwise, any property, real or personal, within this State, necessary or convenient for the uses and purposes of the corporation; and generally to secure to its members the benefit of cooperation."
The foregoing provision was amended January 24, 1929, in accordance with a resolution of plaintiff's board of directors adopted November 14, 1928, to read, in so far as here material, as follows:
"To establish and conduct a club to aid in fostering and developing the transportation business and the commercial interests of the entire community of San Francisco and vicinity and in aid of such purpose, to purchase, acquire, and hold in the City and County of San Francisco, State of California, property, real and personal, suitable for the purposes of said corporation.
"To acquire by purchase, lease, or otherwise, and conduct suitable quarters for the meetings of its members as a whole or in groups."
2. During the period July, 1929, to June, 1933, both inclusive, plaintiff paid $9,812.75 as taxes on dues and initiation fees of its members, and likewise during the period July, 1933, to November, 1934, both inclusive, plaintiff paid taxes on dues and initiation fees of $2,653.53. The payments were made monthly, the earliest payment herein involved being made August 10, 1929, and all payments being made as set out in Plaintiff's Exhibits 1 and 4, which are incorporated herein by reference. The total payments of $9,812.75 are sought to be recovered in case No. 42896 and the total payments of $2,653.53 are sought to be recovered in case No. 43052.
Except for payment of tax, and the filing of claims for refund, together with action thereon, the facts herein found are, by agreement of the parties, made equally applicable to both cases.
3. July 26, 1933, plaintiff filed a claim for the refund of the first payments referred to in finding 2 ($9,812.75), assigning as a basis therefor that it was not a socialWest Page 202club within the meaning of the applicable internal revenue statutes. July 19, 1934, the Commissioner of Internal Revenue rejected the claim on the ground that the social features of the organization form a material part of its purpose and activities and therefore cause it to qualify as a social club within the meaning of section 501 of the Revenue Act of 1926 as amended by section 413 of the Revenue Act of 1928.
March 6, 1935, plaintiff filed a similar claim on account of the second payment referred to in finding 2 ($2,653.53) and that claim was rejected by the Commissioner March 22, 1935, for reasons similar to those advanced in connection with his action on the first claim.
4. The membership of plaintiff (herein sometimes referred to as "the club") is made up largely of men interested in matters pertaining to transportation. In most instances the members are directly concerned either with furnishing transportation, such as representatives of railroads, steamship companies, trucking interests, etc., or those concerned with the use of transportation facilities for the shipment of the commodities of the companies, organizations, or agencies with which they are connected. However, there is no prohibition in the articles of incorporation against those not interested in transportation becoming members of the club, and in some instances members are admitted who have, at most, only an indirect interest in transportation problems, including attorneys, physicians, insurance agents, etc.
Since 1922 plaintiff has been a member of the Associated Traffic Clubs of America, a national organization of clubs interested in matters pertaining to transportation. That national organization issues bulletins semiannually outlining work on various transportation subjects, and these bulletins are distributed without charge to plaintiff's members. In addition plaintiff receives and acts upon resolutions affecting transportation, which are received from the national organization.
5. The membership of the club was approximately 612 in 1929, but it declined gradually during the period of the depression to slightly less than 400 in 1934. Originally the initiation fee was $25, but about the beginning of the period 1929 to 1934 it was found necessary, because of the desire to secure new members to replace those who were being lost, to reduce that fee to $10, later to $5 and to dispense with it entirely for a certain period. During the period involved in these proceedings the monthly dues, including federal tax, were $5 and during a part of that period those dues were billed to the members as dues $4.54 and tax 46 cents. In some instances the dues of certain members of the club are paid either directly or indirectly by the employers of those members.
The club is not operated for profit. Its average annual gross income during the period involved in these proceedings was approximately $31,000, from 80 to 90 per cent. of which was derived from dues. The principal expenditures are for rent and salaries and wages of employees.
6. Plaintiff's officers consist of a president, first vice-president, second vice-president, and secretary-treasurer, and a board of directors, all of whom serve without pay. There are 10 standing committees with membership approximately as follows: House, 4 to 6 members; auditing, 2 members; entertainment, 1 to 2 members; membership, 3 to 5 members; speakers, 1 member; hospitality, 2 to 3 members; transportation, 3 members; educational, 4 to 5 members; publicity and editor of "Time Card," 1 member; librarian, 1 member.
The club employs the following paid employees: assistant secretary, who keeps the club records; a steward and his relief man; and three Chinese boys, who work in shifts as porters and houseboys.
7. The club occupies quarters in the Palace Hotel, a large and centrally located hotel on Market street in the business district of San Francisco, for which it paid a rental varying from $12,000 per year for the first year involved in these proceedings to $9,100 for the last year. The furnishings therein, except for a piano and the chinaware, are owned by the club, and were carried on its financial statements at net amounts varying from $10,115.64 in 1929, to $4,495.02 in 1934, the reductions being accounted for in most part by reductions for depreciation. The quarters are on the ground floor and second floor of the hotel, with an entrance from the street and from the hotel lobby. The club is open from 8 a.m. to 1 a.m. during week days and from 9 a.m. to 7 p.m. on Sundays. As will hereinafter appear, the principal use of the club quarters is during the luncheon period, though the facilities of the clubWest Page 203are available during the hours just mentioned, and a relatively small number of members make use of them at hours other than the luncheon period.
On the ground floor are a lobby entrance with telephone booths, coat room and wash room, buffet and reception or club room, and on the second floor are an office, coat room and lavatory, library, and a large room which is divided by a temporary partition to provide a dining room and pool and billiard room.
The buffet is divided into two small rooms, one of which contains a small fully equipped bar and the other is equipped and operated as a lunch room. The patronage at the bar averages 10 to 15 during the luncheon period and 5 to 6 at various times in the evening. The bar is permitted to serve drinks in the club and also to sell bottled goods to be taken away. It is kept open for the same period as the rest of the club. Little business is done on Sundays, though the bar is open. In addition to alcoholic beverages from the bar, and light lunches from the lunch room, cigars, cigarettes, candy, and cards are on sale. There is a radio in the lunch room.
The reception club, or gaming room is equipped with 18 or 20 domino tables, each conveniently accommodating 4 players. During the luncheon period from 12:15 to 2 p.m., an average of from 30 to 40 persons are engaged in playing dominoes, usually being served with sandwiches, glasses of milk or beer, or some other form of light lunch from the buffet while playing. During the afternoon and evenings use is made of the domino tables, but the number playing is small compared with those so engaged during the luncheon period. There are a davenport and six or seven overstuffed chairs in this room in addition to the chairs used at the gaming tables. There is also a poker table available but it is rarely used. Bridge is also engaged in at the club, one or two tables being used for that purpose.
The billiard room is equipped with two billiard and two pool tables, with the usual equipment and facilities appertaining thereto. Three or four members ordinarily use these tables during the luncheon period and there is some use of them at other periods of the day, though the principal use is during the luncheon period. No charge is made to members for the use of these tables.
The dining room is in reality a part of the same large room as the billiard room, being separated therefrom by a movable temporary partition which is ordinarily located to make the dining room about twice the size of the billiard room. The dining room is equipped to serve approximately 100 persons with an average attendance at the noonday luncheons during weekdays of 50, except Saturdays, when about 8 or 10 are served. No meals are served on Sundays, no breakfasts at any time, and dinners only by special arrangements which are infrequent. The meals are served by the Palace Hotel, the food, dishes and chinaware, and waiters being furnished by the hotel. The assistant secretary collects for the meals when served and makes remittance to the hotel without any charge or credit appearing on the books of the club.
The library is furnished with three davenports, approximately twelve upholstered chairs, two writing desks, two center tables, eight or nine lamps, oil paintings, rugs, and draperies. It contains nine bookcase sections, each having four or five shelves. The books are largely standard literature, with fiction predominating, and with very few dealing with matters solely related to transportation. In addition there are standard dictionaries and encyclopedias. The club subscribes to approximately twenty-two magazines of the standard and popular variety and in addition it receives three or four magazines without charge. All of the above magazines are to be found in the library and only two or three of them deal with matters primarily related to transportation. The library is used at all hours when the club is opened as a reading and writing room of the character contemplated by its furnishings and equipment.
8. The club sponsored social functions as shown below for the purpose of bringing members of the club together and increasing interest in the club. The first three mentioned are of annual occurrence, to which the family and friends of members are invited. Otherwise, except at irregular intervals, ladies are not permitted in the club and no special accommodations are provided for them. These social affairs are underwritten by the club and tickets are usually sold to defray the cost. The social functions held and the cost of them to the club are shown by the following tabulation which covers the greater part of the period involved in these proceedingsWest Page 204(the period omitted being comparable to that shown herein):
--------------------------------------------------------------------------------------------------------- | Fiscal Year Ending |----------------------------------------------------------- | Feb. 28, | Feb. 28, | Feb. 28, | Feb. 29, | Feb. 28, | 1929 | 1930 | 1931 | 1932 | 1933 ---------------------------------------------|-----------|-----------|-----------|-----------|----------- Christmas Jinks ............................ | $600.80 | $427.79 | $474.47 | $271.38 | $298.96 New Year Party ............................. | 229.95 | 139.51 | 196.98 | 109.87 | 69.44 Christmas Luncheon ......................... | 117.86 | 173.78 | 39.60 | 90.37 | 47.70 Ladies Night ............................... | 88.58 | 110.56 | 90.10 | ......... | 5.75 Board of Directors' Luncheon ............... | ......... | 110.65 | ......... | ......... | .......... Other Luncheons ............................ | ......... | 110.25 | 95.65 | 94.95 | 31.90 Golf Tournaments ........................... | 340.88 | 120.84 | 14.73 | ......... | .......... Football Dinner Dance ...................... | 87.00 | (20.15) | 20.15 | ......... | .......... Entertainment of Associated Traffic Clubs .. | 252.44 | ......... | ......... | ......... | .......... Halloween Party ............................ | ......... | ......... | 90.57 | ......... | .......... Expense a/c Annual Meeting ................. | ......... | ......... | 81.84 | 50.31 | .......... Anniversary Dinner ......................... | ......... | ......... | ......... | ......... | 308.40 Smoker ..................................... | ......... | ......... | ......... | 37.48 | 198.75 |-----------|-----------|-----------|-----------|----------- Total .................................... | 1,717.51 | 1,173.23 | 1,104.09 | 654.36 | 960.90 ---------------------------------------------------------------------------------------------------------
9. The club has no facilities for athletic events of any kind such as golf, tennis, swimming, gymnastic exercises, etc. On one occasion a golf tournament was sponsored by a club member and the club acted as a clearing house, but only 12 or 14 attended. Efforts have been made, from time to time, to stimulate interest in golf through the appointment of a golf committee, through arrangements by a club member who belonged to a golf club to have the privileges of his golf club extended to plaintiff's members, and through other means, but the interest in this sport, as directly related to the club, is negligible.
10. Approximately once each month the club obtains a speaker who gives an address or lecture to the members and their guests either at the noonday luncheon or in the evening. The subjects of the discourses deal largely with transportation, though in some instances other business subjects are dealt with and in a few instances the subjects have only an indirect relation to transportation or business, but being of a general informative or instructive nature. No charge is made for these meetings and the average attendance is 150 to 200.
The quarters of the club are available for use by the Pacific Transit Association, the Pacific Railway Club, and traveling representatives of the Interstate Commerce Commission, though such use by those organizations is infrequent.
11. The club publishes a monthly bulletin known as the "Time Card" and distributes it to its members. It originated many years prior to the period involved in these proceedings, but it was not in existence during all of the period here involved. It shows the total number of members, gives the names and occupations of new members, sets out the officers and members of committees, and under "Club Notes" gives notice of meetings at the club and club activities of various members. Many of the "Club Notes" are of a personal character, showing trivial incidents relating to individual members, such as a trip out of town, a billiard, pool, or domino game, some entertainment given or arranged, and similar items.
12. The club in its organized capacity does not conduct any campaigns or sponsor any movements looking to a change in, or improvement of, transportation or business. However, through the contacts of individual members interested in transportation and business, and through the association of the club with the Associated Traffic Clubs of America (the national organization), plaintiff has exerted a strong influence for the improvement of transportation and business conditions in the San Francisco area, which is an important transportation center, second only to New York City.
The club provides a place where the members meet and discuss questions of common interest incident to their businesses or professions, matters relating to transportation predominating. Members meet business associates at the club — either by prearrangement with members or with guests whom they take to the club or because men of related interests are members of the club. Such meetings facilitate the transaction of business by theWest Page 205members and enable them to form friendships and acquaintances of business value. The predominant purpose and activity of the club are to provide facilities for and make possible the meetings and contacts of the character described above.
In addition the club is a place of social relaxation and enjoyment during meetings connected with the predominant purpose and activity of the club and during other times when desired, as heretofore shown. These social activities are not merely incidental to the predominant purpose and activity of the club but are availed of for the purpose of attracting new members who will aid in the maintenance of the club and join in its purpose and have in this way become an essential part of its activities and a material feature of its continued existence.
Fred K. Dyar, of Washington, D.C., and Robert H. Jackson, Asst. Atty. Gen., for the United States.
Before BOOTH, Chief Justice, and GREEN, LITTLETON, WILLIAMS, and WHALEY, Judges.
The applicable statute, section 413(a) of the Revenue Act of 1928 (26 U.S.C.A. §§ 950-952), which amends section 501 of the Revenue Act of 1926, imposes a tax of 10 per centum of the amount paid "as dues or membership fees to any social, athletic, or sporting club or organization, if the dues or fees of an active resident annual member are in excess of $25 per year." This provision is practically identical with the corresponding provision (section 701) which appeared in the Revenue Act of 1917 (40 Stat. 319) and which has been repeated in subsequent Revenue Acts. Many cases have arisen in this court and other courts on the question here presented, namely, whether plaintiff is a social club, and, as we said in Chicago Engineers' Club v. United States,9 F. Supp. 680,683, 80 Ct.Cl. 615, 621, "the rule seems now well settled that, if the predominant purpose of an organization is not social and its social activities are merely incidental to the furtherance of its different and predominating purpose, the organization is not a social club within the meaning of the taxing acts. If, on the contrary, the social features of an organization are a material part of its activities and necessary to its existence, and are not merely incidental to its predominant nonsocial purpose, it is regarded as a social club within the meaning of the revenue laws. Army Navy Club of America v. United States,53 F.2d 277, 72 Ct.Cl. 684."
In this class of cases, it has been repeatedly held that each case must stand on its own peculiar facts. We do not think it necessary to discuss the facts in this case for the reason that the special findings of fact made by the court set them out in detail. They show that the social features are so materially interwoven into the entire fabric of the club that without them the club could not exist. Applying the rule established in the Chicago Engineers' Club Case, supra, the petitions must be dismissed. It is so ordered.