American Woodworking Mach. & Equip. Show v. United States
| Decision Date | 20 January 1966 |
| Docket Number | No. C-29-G-65.,C-29-G-65. |
| Court | U.S. District Court — Middle District of North Carolina |
| Parties | AMERICAN WOODWORKING MACHINERY AND EQUIPMENT SHOW, INC., Plaintiff, v. UNITED STATES of America, Defendant. |
William H. Murdock, U. S. Atty., Greensboro, N. C., Richard M. Roberts, Acting Asst. Atty. Gen., Dept. of Justice, Washington, D. C., Myron C. Baum, Norman W. Golden, and Peter Winstead, Attys., Dept. of Justice, Washington, D. C., for defendant.
In this civil tax refund suit, the plaintiff seeks to recover the sum of $7,252.10 in income tax and interest paid for the fiscal year ending May 31, 1963, on the ground that plaintiff is entitled to exemptions from Federal income tax under § 501(c) (6) of the Internal Revenue Code of 1954, which grants exemptions to business leagues. The parties concede jurisdiction under 28 U.S.C. § 1346(a) (1). The matter was submitted to the Court for decision on the basis of stipulated facts and briefs.
From the stipulations and exhibits, including depositions and answers to interrogatories, the Court finds the pertinent facts to be as follows:
FINDINGS OF FACT
1. Plaintiff was incorporated as a nonprofit organization on February 4, 1957, under the laws of the State of North Carolina. Its Certificate of Incorporation provided, in part, that the objects of the corporation were:
2. Except for interim correspondence work between trade shows, the sole activity of the plaintiff has been to promote and operate trade shows for the manufacturers and sellers of woodworking machinery and equipment.
3. From May 13, through May 19, 1958, the plaintiff conducted a woodworking machinery and equipment show in Winston-Salem, North Carolina. It received income from sales or rentals of booths in the amount of $66,582.24. and paid out expenses in conducting the show in the amount of $57,188.92. The net profit (after taxes) was deposited in the plaintiff's account in the Home Federal Savings and Loan Association, Greensboro, North Carolina, where it remained, together with interest earned thereon, until September, 1964, when the funds were transferred into an account under the name of the Woodworking Machinery Manufacturers Association. Between 1958 and 1963, plaintiff conducted no activities other than minimum correspondence in regard to future shows. The net proceeds were intended for use in future machinery and equipment shows.
4. On December 30, 1958, following its 1958 show, plaintiff filed with the District Director of Internal Revenue, at Greensboro, North Carolina, an Exemption Application, Form 1024, seeking exemption from income tax as a "business league" under Section 501(c) (6) of the Internal Revenue Code of 1954. In the application, plaintiff asserted that its purpose was "promotion and development of the manufacturing, selling and use of woodworking machinery and equipment through the medium of conducting trade shows." It was also asserted that "all income is derived from the sale of exhibit space or booths at the trade shows conducted by the Corporation," and that "all funds expended by the Corporation are for operating costs in conducting a trade show once every four or five years."
5. In a letter dated May 27, 1959, the District Director of Internal Revenue notified the plaintiff that its application for exemption had been denied on the grounds that the Corporation was "organized and operated primarily for the purpose of conducting a trade show which constitutes the performance of particular services for individual persons."
6. On April 26, 1962, the plaintiff's Articles of Incorporation were amended. The amendment, in part, eliminated membership requirement in plaintiff corporation, and provided in lieu thereof the following:
7. On May 2, 1962, the by-laws of the plaintiff were amended so as to reflect the amendment to its articles of incorporation.
8. The Woodworking Machinery Manufacturers Association, Philadelphia, Pennsylvania, is a nonprofit corporation and has, at all times pertinent, been declared by the Commissioner of Internal Revenue to be exempt from Federal income tax and from the requirement to file income tax returns.
9. The plaintiff conducted a second woodworking machinery and equipment shown May 15 through May 21, 1963, at Greensboro, North Carolina. The operation of the show produced gross income of $118,836.25, and expenditures in the amount of $94,004.76, with net profit (before taxes) in the amount of $24,831.49. The net profit (after taxes) was deposited in the plaintiff's account in the Gate City Building and Loan Association, Greensboro, North Carolina, where it remained, together with interest earned thereon, until September, 1964, when the funds were transferred into an account under the name of the Woodworking Machinery Manufacturers Association.
10. The 1963 show was financed principally by rental fees charged to manufacturers for booths to exhibit woodworking machinery and equipment. The price of the booths ranged from $300.00 to $855.00, depending on the size of the particular booth. Each exhibitor was also required to contribute $50.00 to defray general advertising costs to promote the show. Advance publicity was largely in the form of advertisements placed in trade journals, or in brochures sent out to prospective exhibitors and users of woodworking machinery and equipment, with respect to the show. Two of such brochures contained the following representation and invitation:
11. In excess of 120 companies exhibited their woodworking machinery at the 1963 show. Of the total number of exhibitors, approximately 41 were members of the Woodworking Machinery Manufacturers' Association. Only 13 members of the Woodworking Machinery Manufacturers' Association failed to have an exhibit at the 1963 show, and some of these were represented by parent or subsidiary companies. Nine organizations were provided free exhibit booths, among these being the Greensboro Chamber of Commerce and the North Carolina Department of Conservation. Total revenue from the sale or rental of booths amounted to $108,333.40, and the income from advertising costs charged to exhibitors amounted to $7,300.00. Members of the Woodworking Machinery Manufacturers' Association received a 33 1/3 per cent discount on the costs of their booths. A "registration book" maintained at the show indicated the exhibitors present, and their equipment shown or manufactured was available to persons attending. A uniform display sign identifying the particular exhibitor was used at each booth, and promotional literature and sales personnel of the particular exhibitor were present at the booth where machinery was being demonstrated. The exhibitors were free to, and did, engage in sales activities at the show. The show was open to the general public without cost. The total attendance at the 1963 show was approximately 9,804 persons from 44 states and 25 foreign countries. Panel discussions were held each day the show was in progress. The subjects of these panel discussions were: "Yard and Dry Kiln Operations," "Rough Mill Procedures," "Sanding Room Techniques," "Finish Machine Operations," "Furniture Material Handling," and "Glue and Veneer Operations." A question and answer period followed each of the panel discussions.
12. Much of the machinery exhibited was relatively large and heavy and could not be easily carried around by a salesman or distributor. A potential buyer of such woodworking machinery, desiring to see it in operation, would usually be taken to a person in the surrounding area currently using the particular machine, or to the manufacturer's...
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