Opinion · United States Court of Claims
Block Hall, Inc. v. United States
57 F.2d 918
- Type
- Opinion
- Court
- United States Court of Claims
- Jurisdiction
- Federal
- Date
- 1932-05-02
- Topic
- general
BOOTH, Chief Justice. Plaiñtiff- is a membership corporation incorporated under the laws of New York. The corporation was organized as a luncheon club in 1926 by a number of the younger business and professional men who had offices nearby its location. The club now occupies its own building, a seven-story structure situated at 21-23 South William street, New York. From June, 1928, to June, 1929, inclusive, the plaintiff paid $20,103.60 taxes to the collector of internal revenue for the Second district of New York.
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BLOCK HALL v. UNITED STATES,57 F.2d 918(Ct.Cl. 1932)
BLOCK HALL, Inc., v. UNITED STATES.
No. M-121.
Court of Claims.
May 2, 1932.
Suit dismissed.
This is a tax case. The plaintiff is a membership corporation incorporated under the laws of New York. Plaintiff conducts and maintains a club occupying a clubhouse located at 21-23 South William street, New York. Plaintiff paid under protest periodically from June, 1928, to June, 1929, inclusive, $20,103.60 to the collector of internal revenue for the Second district of New York, taxes upon initiation fees and dues imposed upon its membership for the above period. The taxes were exacted under section 413 of the Revenue Act of 1928 (26 USCA §§ 872,872note). No jurisdictional issue is involved. The suit is for the recovery of the full amount above stated and interest thereon, predicated upon the theory that plaintiff's club is not a social, athletic, or sporting one.
The court, upon the report of a Commissioner and the evidence, makes the following special findings of fact:
1. Plaintiff is a membership corporation incorporated under the laws of the state of New York, and has its principal office at 21-23 South William street, New York City.Page 919
2. Under section 413 of the Revenue Act of 1928, the plaintiff collected from its members as taxes amounts equal to 10 per cent. of their initiation fees and annual membership dues, and periodically from June, 1928, to June, 1929, inclusive, paid under protest the amounts so collected, a total of $20,103.60, to the collector of internal revenue for the Second district of New York.
3. On or about June 17, 1929, the plaintiff duly filed a claim for refund, with interest, of the amount of taxes so paid. The basis set forth in the claim was that plaintiff was not a "social, athletic, or sporting club or organization," within the meaning of the Revenue Act of 1928.
On December 26, 1929, the Commissioner of Internal Revenue rejected said claim, and held that the dues and fees paid by the members of plaintiff club were properly subject to the tax imposed under section 413 of the Revenue Act of 1928.
4. Plaintiff was organized as the result of a desire of a group of the younger business and professional men, who had offices in the heart of the financial district in New York City, to form a luncheon club that would be a small duplicate of the India House, one of the best known of New York City's luncheon clubs. The India House is located a few hundred feet from plaintiff's property. It was organized prior to the war, and its limited membership was immediately filled by the older men in the financial district who were engaged in foreign commerce, shipping, admiralty law, marine insurance, and other business and professional activities. The younger men who were engaged in the same pursuits and who had offices in the same district were unable to have a luncheon club of the character of the India House, but strongly desired a smaller club of similar character. They were obliged to have their lunches at neighborhood restaurants where the prices were high and the food ordinary. Their business and professional activities called for a great deal of entertaining of downtown people, and it was very inconvenient not to have such facilities handy to their offices.
In July, 1926, in order to provide these facilities and start the plaintiff club, they joined together, put up funds, and secured plaintiff's charter. This charter declared one object of plaintiff club to be: "To purchase land or other property and build or otherwise acquire, and to maintain, lease or otherwise arrange for the use of, a club house for its members and to promote their frequent meeting together."
It was further provided that none of the powers granted in the charter should be construed to secure powers for the corporation to engage in business for profit, and that all of the powers enumerated were to be possessed and used only in aid and furtherance of the object quoted herein.
At that time plaintiff's members contemplated purchasing a property which is adjacent to their present establishment and the erecting or remodeling of a small five-story building which was to be devoted entirely to serving lunches on business days. Applications for membership in the plaintiff club came in so rapidly that the premises then under consideration were considered not large enough, and the present site was purchased in February of 1927.
On this larger plot of land a much larger clubhouse was planned and constructed. During the planning of it, and in fact while the building was being constructed, a number of the members expressed a strong desire to have some small facilities for taking exercise at midday.
While the group wishing these conveniences was a minority of the club membership, such members were very insistent, and prevailed upon the majority of the club membership to provide facilities for physical exercise.
The club opened in July, 1928.
5. Membership in the club is not exclusive. Any male person who shall have attained the age of 21 years may become a member if properly vouched for and his application for membership is approved by the membership committee. The membership of the club is not confined to any class, but is composed principally of stock brokers, lawyers, insurance brokers, bankers, merchants, and others, practically all of whom have business offices in the financial district of New York City. A large proportion of the members are engaged in maritime shipping and related activities. Seventy-five per cent. of the members have offices within 250 yards of the club.
The club has a limited membership, but it has never been filled. Out of a total membership of 789, there were 300 life members, 440 resident members, and 49 nonresident members. The life members paid no dues, the resident members paid annual dues of $150, and nonresident members paid $30. The life and resident members paid an initiationPage 920fee of $10. Further initiation fees were levied as capital assessments for which life members paid $1,000, and resident members paid $400.
Membership in the club does not entitle the members to reciprocal privileges in any other club.
6. Plaintiff occupies a seven-story structure approximately 50 by 90 feet as lessee of the Adrian Block Realty Company, a corporation, all of the capital stock of which is owned by the plaintiff. A little less than half of the first two stories of the building is occupied under a lease by an insurance firm from which the club received $7,500 per year as rent. This leaves for the club over half of the first and second floors, and all of the third, fourth, fifth, sixth, and seventh floors.
The basement is occupied by the heating apparatus, refrigeration, and storage facilities.
That part of the first floor occupied by the club is a lobby, hat checkroom, cigar stand, a small waiting room for guests, and a lavatory. That part of the second floor occupied by the club is used as a lounge. This room is about 30 by 70 feet in size. There are also telephone booths and a service table provided on this floor. The main dining room is located on the third floor. It takes up practically the entire floor space, and will seat about 250 persons. Two-thirds of the fourth floor is also used as a dining room which has a capacity for seating about 125 persons for luncheon, and the remaining one-third is a kitchen. The fifth floor is composed of five private dining rooms; three of which may be converted into one large dining room in case of an overflow of luncheon members at noontime. Each one of the private dining rooms will accommodate about twenty persons. There is also a small room, used by the pastry cook, with an electric oven, mixing machines, etc. The sixth floor is composed of a regulation squash rackets court and regulation squash tennis court, either of which may be used as a handball court. About one-third of the floor space is used to serve quick order luncheons, such as oysters, oyster stew, sandwiches, etc., and is for the convenience of those who play games at noontime and want a hurried meal after their exercise. There is also a rubbing room, a rest room, and a lavatory. Half of the seventh floor is taken up by the courts; the courts being two stories in height. A balcony is provided on the seventh floor for the quash tennis court, which will accommodate about twenty persons. There are also a small gymnasium 15 by 17 feet, a locker room, four showers, and a lavatory.
A small part of the roof has been laid out for a handball court, but it has practically never been used for that purpose, and the roof is used mostly as an outdoor drying room for the club's laundry.
The land and building cost the plaintiff $206,615.50 and $518,510.81, respectively, and the furnishings cost $110,823.71.
7. The club was open on business days from about 11 a.m., at which hour the club employees report for duty, until 7 p.m. It had no sleeping accommodations. No breakfasts or dinners were served. The principal activity of the club was the serving of luncheons. Members gathered there because of the convenience of the location of the club to their offices, the quality of the food and service, and the opportunity to meet other members engaged in kindred activities, and to confer with them. It was also a convenient place for members to entertain their friends at luncheon, and to hold business conferences at the luncheon table, or in the lounge after luncheon. Luncheon was served from 12 o'clock noon until 2:30 p.m., and service was also provided for members to secure coffee in the lounge after luncheon until 3 p.m., in which case the member paid a small charge for his coffee.
The lounge is open during club hours. It is used as a convenient meeting place for members, and is always available to them for conferences with other members or with their guests. As a general rule it is not occupied after 2:30 p.m. It is never occupied before the luncheon period, and at 3 p.m. the club is practically deserted.
The club has facilities for serving approximately 465 luncheons at one time. During the period in question an average of approximately 225 luncheons were served daily. Meals were served at a la carte rates, and the dining room service was about the same as that furnished in a high-class restaurant. Members were permitted to bring guests to the club upon payment of a small fee. From July 1, 1928, to November 1, 1929, the club entertained over 40,000 guests. Ladies had no privileges in the use of the club, but could dine there when accompanied by a member.
The private dining rooms were used by members for luncheon conferences of professional men and business executives. They were also available for group dinners by making special arrangements with the chef.Page 921Among the firms using the private dining rooms for luncheon were Spencer Trask Co., Marine Office of America, American Founders Corporation, and Harris Forbes Co. No speakers or entertainment of any kind were furnished at the luncheons.
Many prominent people came to the club for luncheon. These visits were informal, and the club gave no dinners, nor receptions in their honor.
8. While only about 13 per cent. of the members were players in the games of squash tennis and squash rackets, a very active interest in the athletic facilities of the club was manifest in a majority of the members through the use given of a substantial part of the club building to such facilities. The athletic facilities were available during the hours that the club was open, but were used mostly during the luncheon period. There was also a demand for them between 5 and 6:30 p.m. The courts were closed during the months of July and August, and were not used extensively in June and September because of the temperature. During the winter season the courts are used to capacity at the midday period. The squash courts were used by the members not only for the intrinsic enjoyment which the games afforded, but to help the members keep physically fit. Squash tennis and squash rackets are games which provide intensive physical activity, and the usual playing period for each person is thirty minutes. The courts provide facilities for approximately thirty men to play the squash games one-half hour each during the midday period. One of the courts was used occasionally for handball, which is played by four players instead of two, and in such cases the courts could accommodate thirty persons during this period.
A fee of 50 cents per person per half hour is charged, and an attendant is provided to play the games with a member when needed. An additional fee of 50 cents must be paid the attendant in such cases.
Out of a total membership of 789, during the period involved herein, 94 members used the courts. Of this number 37 used them more than ten times, 31 between five and ten times, and 36 not more than five times. There was no fraternizing or loafing among those using the courts and adjacent facilities. Very few guests used the athletic facilities of the club. From June, 1928, to November 1, 1929, the operation of the courts showed a profit of $1,350.60.
Four tournaments were held annually by the club; an open club championship and a handicap tournament for each of the games, squash rackets and squash tennis. Club members only could participate. The games were commenced about 6 p.m. There were usually about twenty entrants in each of the contests. Entrants paid a fee of $1, which was used for prizes. These matches were attended by members of the club interested in the squash games, who could witness the same from the balcony provided. On these occasions dinners were served at the club by special arrangement. No entertainment of any sort was provided at the dinners, and each member paid for his dinner. The club did not participate in interclub tournaments.
On two or three occasions the club staged exhibition matches of the squash games. These matches were arranged between one of the good players in the club and some friend, a good player from another club. These exhibitions were well attended; the balcony being filled to capacity. Dinner was served at the club on these occasions. At these dinners there was no entertainment. There were speeches by the president and other members to stimulate interest in the club and increase its membership. Each member paid for his dinner, but no charge was made for witnessing the exhibition match.
9. The club's gymnasium is equipped with Indian clubs, dumbbells, chest weights, and a rubbing table. The latter is used chiefly to lie down and rest upon. No rubber was employed by the club during the period in question.
The size of the gymnasium makes it impossible for more than three persons to use it at one time, and it was seldom used during the period in question, except as a dressing room.
10. The club has never sponsored a card party, theatrical performance, lecture, or similar form of amusement or entertainment. It did not hold or promote athletic events, except as set forth in the findings. It had no facilities for billiards, pool, card playing, or similar forms of amusement. It had no barber shop or swimming pool.
11. The club had no library. The only available reading material consisted of four daily New York newspapers, and six financial and commercial papers. It had two New York Stock Exchange quotation tickers.
12. The club maintains a staff of 114 employees; 88 of whom are connected withPage 922its dining facilities. The miscellaneous employees include four pages and a valet.
The club operated at a loss.
13. One of the purposes and activities of plaintiff club was to provide and maintain a luncheon club convenient to the offices of its members, where the members could frequently gather together for luncheon and discuss matters of mutual interest, renew their acquaintanceship, meet others engaged in similar activities, and entertain friends at luncheon. Its athletic facilities and activities were not merely incidental to its purpose and activity, and were essential to enable the club to function.
Fred G. Dyar, of Washington, D.C., and Charles B. Rugg, Asst. Atty. Gen., for the United States.
Before BOOTH, Chief Justice, and WILLIAMS, LITTLETON, GREEN, and WHALEY, Judges.
(a) Section 501 of the Revenue Act of 1926 is amended to read as follows:
Section 501. "(a) There shall be levied, assessed, collected, and paid a tax equivalent to 10 per centum of any amount paid —
"(1) 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; or
"(2) As initiation fees to such a club or organization, if such fees amount to more than $10, or if the dues or membership fees, not including initiation fees, of an active resident annual member are in excess of $25 per year.
"(b) Such taxes shall be paid by the person paying such dues or fees.
"(c) There shall be exempted from the provisions of this section all amounts paid as dues or fees to a fraternal society, order, or association, operating under the lodge system, or to any local fraternal organization among the students of a college or university. In the case of life memberships a life member shall pay annually, at the time for the payment of dues by active resident annual members, a tax equivalent to the tax upon the amount paid by such a member for dues or membership fees other than assessments, but shall pay no tax upon the amount paid for life membership.
"(d) As used in this section, the term `dues' includes any assessment irrespective of the purpose for which made; and the term `initiation fees,' includes any payment, contribution, or loan required as a condition precedent to membership, whether or not any such payment, contribution, or loan is evidenced by a certificate of interest or indebtedness or share of stock, and irrespective of the person or organization to whom paid, contributed, or loaned."
(b) Subsection (a) of this section shall take effect on the expiration of thirty days after the enactment of this act.
A timely claim for refund of the above taxes was filed with the Commissioner of Internal Revenue on or about June 17, 1929, and rejected by that official on December 26, 1929. This suit is for the recovery of the full amount of taxes paid as above, and the asserted right to a judgment is rested upon a contention that the club is not a "social, athletic or sporting one," and hence is exempt from taxation under the foregoing revenue act.
Membership in the club is not signally exclusive, i.e., the expense of initiation and dues is not so extravagant as to preclude in normal times from its privileges a large class to whom it caters. When the testimony was taken the club had a total membership of 789, divided into 300 life, 440 resident, and 49 nonresident members. The building which it occupied was a commodious one set apart in reservations for its activities. The main dining room occupied nearly all of the third floor, accommodated 250 persons, and two-thirds of the fourth floor was also used as a dining room, where space was available to serve 125 luncheons. The club rooms were opened at about eleven in the morning, and remained open until seven in the evening. No breakfasts or dinnersPage 923were served, and no sleeping rooms were provided for members. The club at no time sponsored card parties, dinner or other dances, theatrical performances or lectures. There were no pool or billiard tables for members, no facilities for card playing, and, as the findings show, no catering to or encouragement of the varied and multitudinous forms of amusement and diversion which enter into and make up what is called a social club; an organization where social activities predominate, are material to the organization, and are not merely incidental. Army and Navy Club of America v. United States,53 F.2d 277, 72 Ct. Cl. 684.
We think, without going into minute detail upon the social features of the case, that the findings conclusively show that the club is not and may not be classed as an organization where its social activities predominate or are more than merely incidental; in fact, the indisputable testimony clearly establishes that a decided minimum of social activities marked the daily conduct and doings of its membership, and that the organization was not incorporated for and did not intend to supply the opportunity or provide for any form of social intercourse other than that which incidentally attends any usual and ordinary gathering of people.
Article 37 of the Commissioner's regulations (43), promulgated for the administration of section 413 of the Revenue Act, reads as follows: "Art. 37.Athletic or Sporting Clubs. — Tennis, golf, boxing, boating, canoe, fishing, and hunting clubs, and any organization (of which the members are individuals) for the practice or promotion of athletics or sports, are included within the meaning of the words of the act, `athletic, or sporting club or organization.' A local, sectional, or national `athletic or sporting' association, the membership of which is composed wholly or partly of member clubs, is not within the scope of the act. The possession and use of a gymnasium, swimming pool, or other athletic facilities by an organization having religion or philanthropic social service for its exclusive or predominant purpose does not bring the organization within the class of athletic or sporting clubs or organizations."
The entire sixth and one-half of the seventh floor of the plaintiff's club building are occupied by squash racket and tennis courts; rubbing, rest, and lavatory rooms are provided in connection with the courts. The courts are two stories high, and a balcony of sufficient size to accommodate about twenty persons is provided on the seventh floor, from which spectators may view the games. Within this space there also exists a small gymnasium 15× 17 feet, a locker room for athletic costumes, four shower baths, and another lavatory. A handball court is laid out upon the roof, and, while infrequently used, is available for use. All these athletic facilities were available to members during the hours the clubhouse was open. They were used to their capacity during the luncheon hour, and from five to six-thirty in the afternoon. It is conceded that during cool weather they were in demand to their capacity during the midday period. At least twenty members could play at a time for one-half hour on the squash racket courts, and four could play at a time on the handball courts. The gymnasium was equipped with Indian clubs, dumbbells, chest weights, and a rubbing table. Facilities were supplied for furnishing light luncheon and food to the players when playing, and a fee of fifty cents a half hour was charged each player for use of the courts, as well as an additional fee of fifty cents where an attendant, who was constantly on hand, was called in to furnish the requisite number to play a game. Four tournaments were held annually by the club, viz., an open club championship, a handicap and championship tournament for each of the games of squash racket and squash tennis. These tournaments commenced at six in the evening, were open to and attended by members of the club, and special dinners were arranged for and served upon these occasions. The club on two or three occasions sponsored exhibition matches of squash games between its own and another good player from some other club. All these exhibitions were well attended; the balcony was filled to its capacity, special dinners were served on each occasion, and speeches were made by the president of the club and other members to stimulate interest in the club. No admission fees were charged members to witness the contests, and the dinners served were not at the club's but at the individual member or members' expense. Was then this club an athletic or sporting club within the meaning and intent of section 413 of the Revenue Act? The Commissioner's regulation designates a club as an athletic or sporting one in the event any organization is intended "for the practice or promotion of athletics or sports." It is self-evident that Congress intended to tax all clubs which had for their purpose nothing more than social gatherings and/or practice or promotion of athletics or sports.Page 924Clubs intended to promote and foster the development and expansion of the various serious activities of the community or those given to the single purpose of serving food to its membership, notwithstanding they may have in a measure a dual activity, one incidentally social and the other nonsocial, were not, as held by the courts, within the purview of the revenue law, and, in the absence of any cited decisions to the contrary, we know of no other established rule to apply to the decision of this case. If the athletic and sporting activities of the plaintiff club were merely incidental and intended, as the plaintiff insists, to provide limited facilities for daily exercise to the end of maintaining physically fit those who availed themselves of the privileges, the contention would have weight. The record, however, we think negatives the insistence. The club gives over an extensive and very large portion of its clubhouse to sports; it omits no detail in providing the essential appurtenances which accompany the indulgence in the games, such as attendants, rubbing rooms, shower baths, lockers, and lavatories. The club maintains an interest in the games by encouraging tournaments which attract its membership in large numbers, events which not only contribute to a constant interest in the games, but serve to increase its financial receipts from its dining rooms. Contests are arranged between its own and members of other clubs devoted exclusively to proving superior skill in the playing of the games provided for, and, so far as we are able to discern from the record, the club omits nothing to make the athletic and sporting activities of the organization attractive and noticeable. Speeches are delivered by officials of the club on the occasion of these events, speeches which it is conceded are intended to augment interest in and increase the membership of the same, and made to an assembly brought together by an athletic event, undoubtedly of great and permanent importance to the club. As a matter of fact, the club's athletic and sporting events constitute its outstanding activities; they are the attractive features which hold the attention of its membership and draw them in large numbers into the clubhouse when they occur; and manifestly, if it were not for the skill developed in its membership by the constant playing of games, the tournaments would be devoid of interest and the attendance thereon negligible. It is, we think, of somewhat minor significance in this case that a minority of its membership actually avail themselves of the privileges now in issue. A vast number of members of athletic and sporting clubs do not actually play the provided for games, swim in the swimming pool, or indulge in any way in physical exercise. Nevertheless, the facilities for so doing are provided, the club incurs great expense to provide them, and emphasizes their presence and the advantages to be obtained by their use. It is not necessary for a club to be a professional, athletic or sporting club to come within the taxing act. Congress was not alone intending to tax clubs engaged exclusively in promoting professional entrants into professional events in the athletic and sporting field. In our opinion, if the athletic and sporting activities of the club constitute the material and attractive factor which enables it to go forward and continue its existence, if these activities are the outstanding features which characterize the organization, and are recognized by its membership as segregating the organization from a mere social or professional club, it cannot be said that they are merely incidental. Beyond doubt the extent of the facilities set apart and provided for by the club, the completeness and efficiency of the equipment supplied, taken in connection with the sustained interest and persistent promotion by the club and its membership of the athletic and sporting events mentioned, render it impossible to hold that the club does not "practice or promote athletics or sports." We think it not only does do so, but that it forms a material and most substantial part of its activities. The petition will be dismissed. It is so ordered.
WHALEY, Judge, dissents.Page 925