Opinion
No. M-219.
February 6, 1933.
W.A. Bolinger and Harvey D. Jacob, both of Washington, D.C., for plaintiff.
Fred K. Dyar, of Washington, D.C., and Charles B. Rugg, Asst. Atty. Gen. (Charles F. Kincheloe, of Washington, D.C., on the brief), for the United States.
Before BOOTH, Chief Justice, and GREEN, LITTLETON, WILLIAMS, and WHALEY, Judges.
Suit by the Wichita Commercial Social Club Association against the United States.
Judgment in favor of the defendant dismissing the petition.
This case having been heard by the Court of Claims, the court, upon the report of a commissioner and the evidence, makes the following special findings of fact:
1. The plaintiff is a corporation organized and existing under the laws of the state of Kansas. It was incorporated January 19, 1909. The issue in this case is whether the plaintiff is a social, athletic, or sporting club within the meaning of section 501 of the Revenue Act of 1926 ( 26 USCA § 872 note), and section 413 of the Revenue Act of 1928 ( 26 USCA § 872 and note).
2. The plaintiff's charter sets forth the purposes of the club in its second paragraph in the following language: "That the purposes for which this corporation is formed are to maintain a club for social enjoyment and to assist in the promotion and development of the literary, benevolent, scientific, and industrial interests of the City of Wichita, Kansas, and to own such personal property and real estate and buildings thereon, necessary and incidental to the purposes for which said corporation is created."
And in its sixth paragraph the charter provides:
"That the estimated value of the goods, chattels, lands, rights, and credits owned by the corporation is two thousand five hundred dollars.
"That the amount of the capital stock of this corporation shall be none and said corporation is to be organized, created, and carried on without profit."
3. For the period of June, 1926, to May, 1930, inclusive, the plaintiff paid to the collector of internal revenue at Wichita, Kan., a total of $11,405.29 as taxes on dues and admission fees of its members, under the provisions of section 501 of the Revenue Act of 1926 and section 413 of the Revenue Act of 1928.
4. On July 10, 1930, the plaintiff filed a claim for refund of the $11,405.29, taxes paid, as referred to in preceding finding, with the collector of internal revenue at Wichita, Kan.
On December 8, 1930, the Commissioner of Internal Revenue rejected the claim for refund.
5. Article 5 of plaintiff's by-laws provides for memberships as follows:
"(1) Memberships are of four kinds, namely: Resident, nonresident, honorary, and associate. Memberships are not transferable except as hereinafter provided.
"(2) Only male persons over twenty-one years of age and widows of resident members shall be eligible to membership. * * *
"(11) Membership may be taken out by individuals, firms, or corporations for their employees, but no such employee shall have the privileges of the club unless and until his application is approved by the board. Such memberships may be transferred, upon the application of the employer, from one employee to another, successively, when and if approved by the board, whether there is a list of waiting applicants for membership or not. But no employee may transfer such membership and no membership shall be transferable unless it was actually taken out and paid for by the employer."
Article 6 of the by-laws provides: "(1) The number of resident members of the club, exclusive of honorary members and officers of the United States Army and Navy stationed in Wichita, or vicinity, shall not exceed five hundred, plus the number of those who have paid up their associate memberships in full and become resident members thereby. * * *"
Article 7 of the by-laws provides for the appointment of certain standing committees as follows:
"(1) At the first regular meeting after election the president shall appoint from among the directors, or from club members who are not directors, except that the chairman of the house and finance committees shall be selected from the directors:
"(a) A house committee of three members.
"(b) A finance committee of three members.
"(c) An entertainment committee of twelve members.
"(d) An entertainment of out-of-town visitors committee of twelve members.
"(e) A membership committee of five members.
"(f) A library committee of three members.
"Such committees are to be standing committees for the current official year, subject, however, at all times to the direction and control of the board of directors."
6. The plaintiff is housed in a comfortable and well-appointed five-story and basement club building located at the corner of First and Market streets in the city of Wichita, Kan., within a radius of two blocks of the principal stores and office buildings of the city. The building was erected by the plaintiff a number of years prior to the beginning of the period involved herein. The cost of the building was $116,354.55 and the cost of the ground was $10,000. The total cost of furnishings up to December 31, 1930, was $57,819.81, at which time the plaintiff's total investment in building, land, and furnishings was $184,174.36.
In the basement of the club there are located the boilers, servants' dressing rooms, and storeroom; on the first floor the men's lounge, the office and lobby, wash rooms, directors' room, ladies' parlors and rest rooms, and the manager's office; on the second floor the main dining room, two private dining rooms, ladies' dining room, and kitchen; on the third floor five sleeping rooms, a billiard room, and a card room; on the fourth floor a linen room and fifteen bedrooms; and on the fifth floor a linen room, fourteen bedrooms, and one storage room.
7. The lounge is furnished with four davenports, approximately twenty large easy chairs, and a large table in the center on which are kept various daily papers and magazines. The papers and magazines constitute the club's complete library. There are also an atlas and a radio in the lounge.
The ladies' rooms on the first floor are divided into three parts. In one part is located a davenport, three chairs, and a writing desk, with lights and ash trays. Adjoining this is a ladies' rest room. Adjoining the ladies' rest room on the east is another ladies' lounge furnished with three davenports, five chairs, and a writing desk. These rooms are principally used as a meeting place for the ladies at luncheon period, at which time they are not permitted in the men's lounge.
The directors' room is the room in which the club directors hold their monthly meetings. It is furnished with two tables, twelve chairs, one davenport, and a bookcase. This room is also used as a meeting place for the Junior League, the City Planning Commission, and a number of business organizations of the city of Wichita.
The main dining room, located on the second floor of the club, is fifty by sixty feet in size and at the present time has a table capacity of eighty-four people. During the years 1926 to 1930, when attendance was larger, the number which it accommodated was larger. The ladies' dining room seats twenty-four. No. 1 private dining room seats forty to fifty and No. 2 dining room seats twenty-four. On an average, not more than five or six ladies use the ladies' lounge and dining room a day.
The main dining room is open for breakfast from 7 in the morning until 11; for luncheon from 11:30 until 2 o'clock; and for dinner from 6 to 8:30. Its use is limited exclusively to members and their male guests during the luncheon period. Ladies lunching at the club are required to use the ladies' dining room. The private dining rooms are used as needed for private meetings and private parties. At such times there must always be present one member of the club to sign checks, and arrangements for use of the private dining rooms must be made by a member of the club. The private dining rooms are used only in connection with business meetings and never by social groups such as college alumni, fraternities, etc. During the years 1926 to 1930 an average of about one hundred and fifty luncheons, twelve to fifteen breakfasts, and twenty-five dinners was served in the several club dining rooms.
The billiard room located on the third floor is approximately fifty by fifty feet in size and contains three pool tables and four billiard tables. A charge is made for the use of the tables. An attendant is ordinarily on duty in the billard room from 11 in the morning until 7:30 in the evening, but is required to remain later than 7:30 if members playing so desire.
The card room located on the third floor is approximately eighteen by twenty feet in size and is furnished with three card tables, a small cigar stand, and a telephone booth. No charge is made for the use of the card tables. The club does not sponsor tournaments for either billiards or cards and gives no prizes or anything of that nature. The card room is seldom used other than for an occasional heart or bridge game. The billiard room is used but little in the evening and at times other than immediately after luncheon.
The thirty-four or thirty-five bedrooms located on the third, fourth, and fifth floors of the club are never occupied at all times. During the years 1926 and 1927 approximately fifteen of the rooms were occupied. During the years 1928 and 1929 the number in use was about twenty-three. Out-of-town guests of the club are assigned to these rooms. At the time the clubhouse was erected hotel accommodations at Wichita were very unsatisfactory. In order to add to its revenue the club has followed a policy of renting some of the rooms to resident members.
8. The officers and directors of the club are paid no salary and no profit results to any private individual from the operation of the club.
9. The club has no periodic social functions, no athletic functions of any kind, and no sporting features. During the fall of 1926 the club undertook to have Thursday night dances. These dances were held for a period of about four months, running into the first few weeks and months of 1927. They were held in connection with a dinner, for which a charge was made of $1.50 a plate, the price of a regular meal. These dances were poorly attended, resulting in a financial loss to the club, and were therefore discontinued after the experimental four months.
10. Listed among the expense items for the years 1926 and 1927 are entertainment expenses in the amount of $353 and $432.30, respectively. These expenses were for flowers and music in connection with the Thursday night dances that ran for the few months as mentioned.
11. The personnel of the club's membership is made up principally from the leading professional and business men of the city, including doctors, lawyers, merchants, bankers, insurance men, and others definitely allied with some business enterprise or profession. During the years involved herein the average resident membership was between three hundred and four hundred, and the average nonresident membership between forty and ninety.
12. The use of the club by women is restricted to the wives and daughters of members. They, however, do not have the general use of the club. During the luncheon period they have the use of the ladies' rooms and the ladies' dining room. They are admitted to the club for dinner only when in company with club members.
13. A number of Wichita organizations, including the directors of the chamber of commerce, the City Planning Commission, the regents of the Wichita University, Kiwanis Club, the Flying Club, the Southwest Cracker Company, the Massey Hardware Company, the Watkins Babbitting Company, and the Sedgwick County Medical Association, have made a practice of using the club as a place for holding their directors, sales organization, and business meetings. Various civic and charitable organizations, including the Junior League, Red Cross, Nursing Association, and community chest, have likewise been permitted to hold their meetings in the club. No charge is made by the club for the use of its clubrooms for the holding of such meetings.
14. Prior to the organization of a chamber of commerce in Wichita in 1916, the plaintiff, through its commerce committee, carried on the work that is usually done by a chamber of commerce. In 1917 or thereabouts the chamber of commerce was organized by the men who were on plaintiff's commerce committee, and for several months the chamber of commerce continued to make the Wichita Club its home. For many years, including the years now in controversy, the Chamber of Commerce held its directors' meetings once a week at the Wichita Club. The plaintiff has at all times worked in close co-operation with the chamber of commerce in connection with many civic matters.
15. Standing committees are maintained by plaintiff as required by its by-laws, but some of them remain very inactive. The house committee has charge of the club in general and its operation, and naturally must function at all times. The library committee also functions regularly, its duties being limited to care of the papers and magazines which have heretofore been referred to as being in the men's lounge room. The club has no books to require its attention. The entertainment committee and entertainment of out-of-town visitors' committee are maintained, but have seldom functioned. For several years, inclusive of the years in controversy, these latter two committees have done practically nothing. The entertainment committee did undertake the Thursday night dances in 1926, but they were not a success.
16. The social activities of the club are not merely incidental to its other activities but constitute an important and material part of the life of the organization.
The facts in this case leave no room for doubt that the social features and activities of the plaintiff club constitute an important and material part of its activities, and are not merely incidental to some other predominant purpose. Fisler v. United States (the Manufacturers Club of Philadelphia) 66 Ct. Cl. 220; Army Navy Club v. United States, 53 F.2d 277, 72 Ct. Cl. 684.