Opinion
No. M-394.
December 3, 1934.
This case having been heard by the Court of Claims, the court, upon the evidence adduced, makes the following special findings of fact:
1. Plaintiff was incorporated in 1910 under the laws of the state of New York, its certificate of incorporation stating that the objects for which it was to be formed were "to maintain and operate a clubroom or rooms for the furnishing of meals and refreshments to its members, and, in connection therewith, a library, reading-room, gymnasium, and other accommodations for the use and convenience of its members. * * *"
Its place of business has at all times been located in the Whitehall building, 17 Battery Place, New York, N Y
2. The plaintiff paid taxes upon dues and fees paid by its members by delivering checks to some official of the defendant. The evidence fails to show when such checks were delivered (except as to two of these payments to which reference will hereinafter be made), but the following table which is sufficiently exact for the purposes of the case shows the dates at which the collector indorsed the same and deposited them for credit to the government:
1924 — July 21 ............................ $ 168.40 August 27 .......................... 84.40 September 30 ....................... 25.00 October 24 ......................... 3,500.00 November 28 ........................ 678.00 December 22 ........................ 367.80 1925 — January 30 ......................... 110.00 February 17 ........................ 118.70 March 26 ........................... 102.00 April 23 ........................... 3,613.60 May 20 ............................. 570.50 June 18 ............................ 408.00 July 15 ............................ 168.20 August 11 .......................... 41.60 September 18 ....................... 5.00 October 23 ......................... 3,489.00 November 21 ........................ 790.00 December 23 ........................ 309.70 1926 — January 28 ......................... 133.20 February 19 ........................ 80.40 March 30 ........................... 94.20 April 28 ........................... 3,653.90 May 26 ............................. 568.50 June 30 ............................ 294.10 July 20 ............................ 142.00 August 24 .......................... 78.00 September 27 ....................... 14.00 October 27 ......................... 3,539.50 November 20 ........................ 838.00 December 18 ........................ 157.60 1927 — January 22 ......................... 95.20 February 15 ........................ 90.00 March 24 ........................... 115.80 April 19 ........................... 3,501.00 May 26 ............................. 822.00 June 22 ............................ 209.00 July 27 ............................ 36.00 August 12 .......................... 140.20 September 26 ....................... 27.00 October 24 ......................... 3,477.00 November 15 ........................ 790.50 December 23 ........................ 222.50 1928 — January 26 ......................... 173.40 February 21 ........................ 79.40 March 27 ........................... 73.00 April 28 ........................... 3,728.50 May 26 ............................. 537.00 June 28 ............................ 261.00 __________ $38,521.80
Plaintiff admits that of the taxes paid in 1924 the item of $168.40 was paid by check delivered to defendant July 18th, which was cleared July 21st, and the item of $3,500 was paid by check delivered to defendant October 22d and was cleared October 24th.
3. On or about July 21, 1928, plaintiff filed with said collector claim for refund of $277.80, being the first three payments described in finding 2, and on or about October 24, 1928, claim for refund of $38,244, being the remainder of said payments, both on the ground that plaintiff was not a social, athletic, or sporting organization within the meaning of the revenue laws.
October 31, 1929, the Commissioner of Internal Revenue wholly denied the claims holding that plaintiff's social features, as he deemed them, formed a material purpose of the organization. On that specific ground the Commissioner rejected $34,175.40 of the claims, and the remainder of $4,346.40, "paid for the months of June, September, and October 1924, for the reason that this amount is barred from recovery by the four-year statute of limitations [Revenue Act 1926, § 284, as amended by Act May 29, 1928, § 507, 26 USCA § 1065]."
4. The Whitehall Lunch Club, plaintiff herein, was organized by the company which built the Whitehall building and for the purpose of attracting tenants thereto, and continued to serve that purpose throughout the taxable period here involved.
During the taxable period in question it was located on the twenty-ninth, thirtieth, and thirty-first floors of the Whitehall building, with a squash court on the roof.
On the twenty-ninth floor were located five private dining rooms with an aggregate floor space of 2,610 square feet, a gymnasium including three handball courts, with a total capacity of 8 players, occupying 4,662 square feet, and a service room of 1,292 square feet.
On the thirtieth floor were located lounging and smoking rooms, coat room, writing room and library, office, pantry, breakfast room, and the main dining room, with a combined area of 15,480 square feet.
On the thirty-first floor were kitchens, pantries, officers' dining room, linen room, and other rooms incident thereto, together occupying 8,468 square feet, and a reception and dining room for ladies, using 1,458 square feet.
The squash court took up 697 square feet and throughout the clubrooms were toilets and lockers for the convenience of members, guests, and employees.
5. The clubrooms had first-class equipment throughout, and were provided with every facility that a man would want for a visit to a luncheon club. A stock ticker was available to the members of the club and a large variety of newspapers, mostly local, and periodicals. The library was equipped with some books, seldom used. The lounge was furnished with a large number of leather chairs and davenports and carpeted with oriental rugs. A few oil paintings were on the walls. In other rooms were numerous etchings and prints and some statuary. The gymnasium was in charge of a physical director, with an assistant and porter, and was well equipped with apparatus, including an electric cabinet bath, violet ray machine, electric horse and camel, rubbing table, chest weights, rowing machine, dumb-bells, bicycle, indoor golf net, medicine ball, wrestling mat, Indian clubs, wrist machine, climbing ropes, a set of rings, miniature putting green.
6. The number of plaintiff's employees and their classification for the years in question were as follows:
Year ending February 28:
======================================================================= | 1925 | 1926 | 1927 | 1928 | 1929 ---------------------------------|------|-------|-------|-------|------ Office ......................... | 8 | 8 | 8 | 8 | 8 Cigar .......................... | 1 | 1 | 1 | 1 | 1 Gymnasium ...................... | 3 | 3 | 3 | 3 | 3 Kitchen ........................ | 29 | 29 | 33 | 33 | 35 Waiters and waitresses ......... | 61 | 62 | 62 | 60 | 52 |------|-------|-------|-------|------ Total ........................ | 102 | 103 | 107 | 105 | 99 -----------------------------------------------------------------------
7. During the several years shown below ending on February 28th plaintiff's expenditures on gymnasium and for lectures and entertainments, and expenditures for other items, were as follows:
============================================================================================================ | 1925 | 1926 | 1927 | 1928 | 1929 --------------------------------------|-------------|-------------|-------------|--------------|------------ Gymnasium ........................... | $913.20 | $1,129.32 | $1,601.13 | $753.60 | $899.38 Lectures and entertainments ......... | 2,052.53 | 2,421.22 | 2,085.99 | 1,941.53 | 2,605.84 Other ............................... | 213,209.52 | 213,597.72 | 220,271.72 | 221,564.33 | 219,153.64 |-------------|-------------|-------------|--------------|------------ Total ............................... | $216,175.25 | $217,148.26 | $223,958.84 | $224,259.46 | $222,658.86 ------------------------------------------------------------------------------------------------------------ There was no specific income from lectures and entertainments. The income from the gymnasium, with other income, was as follows: =========================================================================================================== | 1925 | 1926 | 1927 | 1928 | 1929 --------------------------------------|-------------|-------------|-------------|-------------|------------ Gymnasium ........................... | $2,208.95 | $2,276.05 | $2,342.86 | $2,784.59 | $2,962.65 Other ............................... | 210,289.68 | 208,327.49 | 213,729.71 | 210,246.81 | 211,044.32 |-------------|-------------|-------------|-------------|------------ Total ............................. | $212,498.63 | $210,603.54 | $216,072.57 | $213,031.40 | $214,006.97 ------------------------------------------------------------------------------------------------------------- 8. The average membership during the years 1924 to 1928, inclusive, was, resident, 833, nonresident 171, absentee paying 7, total 1,010. They were made up of business and professional men, the majority of whom were located in the immediate neighborhood, a great many of them in the Whitehall building, and there was no limitation of members in regard to their profession or their business.9. Members began to arrive for their luncheons about 12 o'clock noon and had all left by 3 p.m. The average number served per day was 340 and the main dining room was, except for Saturdays, well filled. On isolated occasions a breakfast was served to a belated commuter. The clubrooms were open from 8:30 a.m. to 6 p.m. The attendance outside the luncheon period was negligible. The members tended to congregate according to their professional or business interests. Two or three of the private dining rooms were regularly reserved and used by member officers of some one company in order that they might confer with one another informally while eating their lunches. Individual members accompanied by visitors usually sat in the main dining room. About a third of the luncheons were served to guests. No dinners were served to individuals as such. Groups might by special arrangement have dinner served to them, and this privilege was rarely availed of. The clubrooms were not used by organizations for dinners.
The ladies' dining room was used by members when accompanied by ladies, the average daily attendance there being from 2 to 20, sometimes none at all, and rarely more than 20. On Saturday such ladies were allowed in the main dining room.
About five lectures or entertainments were given the members and their guests per year. These occurred on Saturdays immediately after lunch, and in the main dining room. When a lecture was given it was educational or informative. The entertainments were by impersonators. When the lecture or entertainment, as the case might be, was concluded, the floor was cleared and dancing indulged in, or other form of amusement, as desire dictated. The attendance at these affairs averaged around 200, and they were concluded at 5 p.m.
The gymnasium, including handball and squash tennis courts, was used by 17 or 18 members a day. Forty or forty-five different men used the gymnasium, and attendance was largely confined to the same group, an occasional member, not a regular attendant, coming in for curative purposes. The gymnasium was used between 12 noon and 2 p.m., rarely after that time. There was practically no teamwork. By the payment of a fee a member might at any time secure the personal services of the physical director or his assistant in games, gymnastic activities, massages, electric cabinet baths, etc. During the winter of 1924-25 the plaintiff invited certain other clubs to conduct a squash tennis tournament in its quarters, which was held, prizes offered, and games played over a period of two weeks. Only one of plaintiff's members participated in it. Plaintiff was a member of the National Squash Tennis Association. At no other time was plaintiff's squash tennis court used to any great extent. Once a year plaintiff held a handball tournament for its own members only, extending over a period of three or four weeks, at which prizes were offered, and in which 22 to 24 members participated. Exhibition matches were not held.
10. The Whitehall building was constructed shortly before plaintiff was organized. The owner of the building had difficulty at the outset in securing tenants. To overcome that difficulty, and to secure a tenant in the process, the landlord organized the plaintiff and established its quarters in the building. This gave the landlord a tenant in the Whitehall Lunch Club, and made that club an attraction to other tenants.
The immediate purpose and effect of the Saturday afternoon lectures and entertainments was the increase of custom at the luncheons which they accompanied. Their effect upon the size of the membership was inconsiderable.
The gymnasium furnished an additional facility to a comparatively few members who took advantage thereof. These facilities were merely incidental and were not important to the club or necessary to its existence or prosperity, and their absence would not have decreased the membership to any material extent.
The predominant activity of the club was the serving of lunches to its members and their guests in such manner as to enable them to come into desired contact with others in a business and professional way, and the club could not have existed without this being done, but on the whole neither the social features nor the gymnasium facilities considered separately, or both taken together, existed in a degree to make them anything more than incidental to the predominant activity of the club, as above set forth.
E.F. Colladay and Wilton H. Wallace, both of Washington, D.C. (James J. Cosgrove, of New York City, and Colladay, McGarraghy, Colladay Wallace, of Washington, D.C., on the brief), 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.
Action by the Whitehall Lunch Club, a corporation, against the United States.
Judgment for plaintiff.
This is an action to recover $38,521.80, with interest, being the amount of tax on dues and initiation fees collected from plaintiff from July 21, 1924, to June 28, 1928, on the ground that the plaintiff was not subject to a tax on club dues and initiation fees. Plaintiff filed claims for refund which were denied by the Commissioner of Internal Revenue.
The general issue is one of fact to be determined from all of the evidence in the case, and on this point we have followed with some slight changes in phraseology the findings of our Commissioner which we think fairly summarize the proper conclusions from the testimony, and from these findings it follows that the plaintiff is not subject to this tax.
The action presents what might be called a "border-line case," and the line, as we think, cannot be drawn any more definitely than was done by this court in the case of Union League Club of Chicago v. United States, 4 F. Supp. 929, 78 Ct. Cl. 351. The decision in that case applied only to the matter of social features, but we think the same rule applies when gymnasium facilities are considered; namely, that, where they are only incidental and not material to the purposes or existence of the club or its prosperity, the fact that some such facilities exist, especially when used by only a comparatively few members of the club, does not make the dues taxable.
Another defense is that the recovery of part of the tax paid by plaintiff is barred by the statute of limitations. The plaintiff filed two refund claims in the respective sums of $277.80 on July 21, 1928, and $38,244 on October 24, 1928. The smaller claim covers, among others, the sum of $168.40 for which an uncertified check was placed in the collector's hands on July 18, 1924, and deposited by him on July 21, 1924. The larger claim covers, among others, the sum of $3,500 which was by uncertified check delivered to the collector on October 22, 1924, and deposited by him on October 24, 1924. The plaintiff concedes that in both of said instances, if the date of payment be regarded as the date upon which these uncertified checks were placed in the hands of the collector, in such event both of these payments are barred from refund by the four-year statute of limitations, but plaintiff contends that the respective dates upon which these checks were deposited and cleared through the banks must be regarded as the date of payment, and that consequently the recovery of these payments is not barred.
In the case of the Second National Bank of Saginaw v. United States, 69 Ct. Cl. 552, we held that the Treasury regulation which made the day on which the collector received the check the date of payment, unless the check was subsequently dishonored, was authorized by the statute and reasonable. The original opinion filed in this case was reaffirmed in a supplemental opinion on motion for new trial, and the same ruling was made in Remington-Rand, Inc., v. United States (D.C.) 57 F.2d 1069. We are not disposed to review these decisions, and following the rule laid down therein hold that a recovery of the two items of $168.40 and $3,500 referred to in the preceding paragraph is barred by the statute of limitations.
With the exception of these two items, the plaintiff is entitled to recover the taxes shown to have been paid by finding 2, with interest as provided by law on each payment from the date it was made. It is so ordered.
BOOTH, Chief Justice, and WILLIAMS and LITTLETON, Judges, concur.
WHALEY, Judge, dissents.