Opinion
This case having been heard by the Court of Claims, the court, upon the evidence adduced, makes the following special findings of fact:
1. Detroit Club, plaintiff, is a corporation organized under the laws of the State of Michigan. It was organized in April, 1883, and reincorporated in April, 1913. It is located in the city of Detroit. Its purposes, as set forth in its articles of association, are: "Third, The purpose of this association is to promote social intercourse among its members and to provide for them the convenience of a clubhouse * * *."
2. Plaintiff paid to the Collector of Internal Revenue, Detroit, a total of $75,049.68, as taxes on the dues and initiation fees of its members, for the period October, 1929, to and including October, 1933, at the dates specified in the petition pursuant to the provisions of section 413 of the Revenue Act of 1928, 26 U.S.C.A. §§ 950-952.
On November 29, 1933, plaintiff filed with said collector its claim for refund in the amount of $74,456.30, on the ground that plaintiff was not a social club within the intent of the taxing act. On February 27, 1934, plaintiff amended its claim by increasing the amount to $75,049.68.
On November 7, 1933, plaintiff, at an annual meeting, adopted a resolution that members who paid this tax relinquished all right, title, or interest in, and assigned to the club any refund which might be secured in connection with such tax on dues. Also, powers of attorney to the club of various members who had been assessed their proportionate parts of said tax are of record.
3. On November 14, 1934, the Commissioner of Internal Revenue rejected plaintiff's amended claim for refund. He held that the dues and fees paid by members were properly subject to the tax imposed. His letter of rejection contained the following: "Careful consideration has been given to the evidence submitted. It is held in view of the purposes of the club, a set forth in its articles of association, the clubhouse and facilities maintained for the use of members and the social features, such as billiards, card playing, etc., that the social features form a material purpose of the club, and that it qualifies as a social club or organization within the meaning of section 501 of the revenue at of 1926, as amended by section 413 of the revenue act of 1928 [26 U.S.C.A. §§ 950-952] * * *."
4. Plaintiff's by-laws provide that the club shall be managed and controlled by a board of directors, elected by its members; that said board of directors shall annually elect from its number a president, two vice presidents, a treasurer, a secretary, an auditor, a chairman and two members of the house committee; that its board of directors shall make such rules and regulations as it deems necessary for the management of the clubhouse and its property.
The club has the following seven committees: Art committee, billiards committee, entertainment committee, games committee, historical committee, library committee, and plumasserie committee. Its card committee operates under its games committee.
5. The club has the following four classes of membership: Resident, non-resident, associate, and lady members. During the period here involved, the club's total membership varied from about 1,150 to about 950, of which approximately three-fourths were resident members; the balance of said membership, in diminishing numerical strength, consisted of non-resident, lady members, and associate members. The club has a waiting list. Following the submission of a questionnaire prospective members are placed in nomination by sponsors. The initiation fee of resident members, prior to 1933, was $750, and since 1933 it has been $400. The annual dues of resident members, prior to 1933, were $200, and since 1933 have been $150. The dues of nonresident members and women members are $50 per year. The privileges of using the women's department of the club are extended to the wives, unmarried sisters, and children of the members.
6. Plaintiff's clubhouse is located at the corner of Fort and Cass avenue in the city of Detroit. It occupies a lot 178' X 176', has four stories, and was built by the club in 1892. In 1935 the book value of its land was $121,037.44; the depreciated book value of its building was $201,364.85; and the book value of its furnishings was $84,251.91.
Plaintiff also occupies two floors of the "Free Press" building, which adjoins plaintiff's property. These two properties are connected by a bridge extending from the third and fourth floors of the club building. Plaintiff's lease covering said two floors of the "Free Press" building runs from 1925 to 1945, and its rental is on a graduated scale. The lease provides for a total rental of approximately $500,000 for said 20 year period, its present monthly rental being at the rate of $1,600. According to the provisions of the lease, plaintiff assumed the cost, in an amount of $74,209.18, for altering and decorating the leased premises.
7. The first floor of plaintiff's clubhouse embraces a large entrance hall, lounge and reading room, grill room and bar, clerk's office, wash room, reception room, and cigar counter. The entrance hall is 20' X 30', from which an attractive staircase leads to the other floors. Elevators serve all floors. The club has its own brand of cigars, and the cigar stand sells smoking articles, candies, and novelties. During holiday periods, the entire room is given over to the sale of tobacco, fruit, candies, and liquor, the sales from which, in 1929, totaled $41,467. Plaintiff subscribes to 50 papers and periodicals at an annual cost of $400, including weekly and monthly magazines, many daily newspapers, and financial sheets. The lounge extends the entire width of the building, is furnished with 50 chairs and davenports, tables for reading matter, and floor lamps. Its walls and ceilings are paneled. The reading and writing room adjoins the lounge and contains a reference library of 200 volumes, also tables and writing desks. Many valuable oil paintings decorate the walls of the lounge and reading rooms.
The grill room is equipped with 20 tables and 90 chairs, is finished in Flemish oak, and the walls are decorated with mounted animals heads and birds. It contains a bar and oyster service bar, and serves as an informal eating place. Members gather in the grill room during the cocktail hour, which runs from 4:30 to 6:30 p.m. Free lunch of crackers and cheese is available at the bar. The card room attendant is on call to assist at the bar during the cocktail hour.
On the second floor the club has its card room with service bar, billiard room, directors' room, and manager's office. The billiard room is equipped with four billiard and two pool tables, numerous chairs, and is paneled. Plaintiff holds billiard tournaments during the winter, and exhibitions are occasionally given by professionals. An attendant is on duty every day and the tables are taxed to their capacity during the noon luncheon period. The card room is equipped with 30 tables, has a service bar, and an attendant is on duty during the busy period of the day. Bridge is the most popular game, although chess, mah jong, backgammon, and dominoes are also played. The walls carry bridge tournament trophies on which are inscribed the winners' names. There is a collection of books on bridge. The club uses its own special playing cards and score pads. Members are served luncheons while playing in both the billiard and card rooms. On this floor there is a barber shop which has three barber chairs, also two manicure tables.
On the third floor of the club building and annex are the ladies' dining room, ladies' dressing or powder room, six private dining rooms, men's dining room, and the kitchen. The two main dining rooms, both large and beautifully equipped, are on this floor. The ladies' dining room seats 120 and the men's dining room seats 100. The ladies' lounge and powder room are finely equipped. The private dining rooms will seat parties ranging from small to rather large groups.
The fourth floor contains a large library, two private dining rooms, 23 bedrooms, service room, rest room, linen room, and servants' locker room. The ladies' department is in the "Free Press" building, admission to which is by separate entrance and elevators. The library, of two connecting rooms, contains 5,000 volumes and consists largely of fiction. Each of the 23 bedrooms has a private bath and compares favorably with rooms in any first class hotel.
8. The club is kept open from 7 a.m. to 10 p.m. The average daily attendance at the club is 190. The largest number of members is attracted during the noon period.
During 1930 the club employed 116 attendants. A large number were employed in the kitchen and dining room; 31 served the clubhouse in various positions, such as bellboys and elevator attendants. Attendants were on duty at the bar, cigar counter, card room, billiard room, sleeping rooms, and barbershop.
The dining rooms and kitchen service rooms utilized about 55 per cent of the clubhouse space. During 1931 there were served in the women's department 660 breakfasts, 16,309 luncheons, and 6,962 dinners. During the same year there were served in the men's department 4,228 breakfasts, 53,287 luncheons, and 6,745 dinners. The private dining rooms in the men's department are freely used by members, business groups, and by organizations which are given the facilities of the club through a member thereof. The ladies frequently use their dining room and private dining rooms for luncheons, family dinner parties, before-theater parties, formal entertaining, debutante and young people's parties. Lady members play bridge, and bridge lectures are given in the private dining rooms. Daily, small groups are entertained in the ladies' department, and two or three times a week functions are given with attendance of 25 or 30. Drinks are served in the women.
9. The average age of the club members is about 50 years. Through the issuance of guest cards, members may extend the privileges of the club, including lodging, to nonmembers. Members frequently sponsor breakfasts, luncheons, or dinners for the entertainment of prominent men visiting in Detroit. Radios are in the grill room and the barbershop. A piano is available for use on the third floor. Lectures, with motion pictures, are occasionally given. The club is the center of friendly gatherings, and its noonday luncheons furnish the average member a convenient opportunity for meeting his friends under pleasant conditions, reading the papers and magazines, and relaxing while playing cards or billiards.
The club provides a service for the securing of theater, baseball, railroad, and other tickets. During the football season it arranges for special cars with transportation, tickets to the game, and luncheon served en route to Ann Arbor, Michigan. It has a regular New Year's function with a collation and music, at which an address is made by a member selected for the occasion. At Thanksgiving time the club holds its annual Keno party which is arranged for by its plumasserie committee, and is largely attended. The Keno party is preceded by a dinner, and the members play for turkeys. In connection with the playing of bridge by its members throughout the winter, a professional instructor is employed through fees paid by the participants, and such meetings, following dinners, are held on Monday nights with instruction and play in the form of tournaments. Individual cups are awarded for each night's play, and the season's winners have their names inscribed on the annual trophies. During 1931 the club expended $780 for silver prize cups.
The various activities of the club are run at a loss. The club uniformly shows a loss both as to serving of meals and as to its games; the rooms rented usually show a profit; and the cigar counter shows a net profit. The sale of drinks shows a substantial net profit, particularly since prohibition. The club served intoxicants both before and subsequent to prohibition. It depends primarily for its support on the dues and initiation fees of its members. The superior quality of the meals served was one of the special attractions of the club.
10. The club promotes social intercourse among its members and provides for them the conveniences of a clubhouse, which are the purposes set forth in plaintiff's article of association. The club provides a convenient and pleasant place for luncheons and relaxation. It furnishes comforts, attractions, and opportunities for various games. Its social activities, as herein enumerated, are attractive to both men and women. These factors are not merely incidental, but constitute essential features of its life. These features are both material and necessary to the life of the club. [Copyrighted Material Omitted] [Copyrighted Material Omitted] Arthur L. Evely, of Detroit, Mich. (Raymond H. Berry and Ralph W. Barbier, both of Detroit, Mich., on the brief), for plaintiff.
Fred K. Dyar, of Washington, D.C. and James W. Morris, Asst. Atty. Gen. (Robert N. Anderson, of Washington, D.C., on the brief), for the United States.
Before BOOTH, Chief Justice, and GREEN, LITTLETON, WILLIAMS, and WHALEY, Judges. PER CURIAM
The facts of the case are clearly set forth in the findings. Plaintiff is a club organization which has been required by the Commissioner to pay taxes upon dues which it received on the ground that it is a social club within the meaning of the law. This is denied by the plaintiff and, a claim for refund having been duly filed, it seeks to recover the dues so paid.
It may be that the predominant purpose of the club is the serving of luncheons to its members, but the commissioner of this court has found that the social features as set out in the findings were quite attractive and not merely incidental, but constituted an essential factor in its existence. In this finding we concur, and under repeated decisions of this court the plaintiff's petition must be dismissed. It is so ordered.