Alonzo Cudworth Post No. 23, Am. Legion v. City of Milwaukee

• Decision Date: 07 March 1969
• Docket Number: No. 12,12
• Citation: 42 Wis.2d 1,165 N.W.2d 397
• Parties: ALONZO CUDWORTH POST NO. 23, AMERICAN LEGION, Appellant, v. CITY OF MILWAUKEE et al., Respondents.
• Court: Wisconsin Supreme Court

Page 397

165 N.W.2d 397

42 Wis.2d 1

ALONZO CUDWORTH POST NO. 23, AMERICAN LEGION, Appellant, v.CITY OF MILWAUKEE et al., Respondents.

No. 12.

Supreme Court of Wisconsin.

March 7, 1969.

Michael, Best & Friedrich, Milwaukee, for appellant.

John J. Fleming, City Atty., Walter J. Schutz, Asst. City Atty., Milwaukee, for respondents.

ROBERT W. HANSEN, Justice.

The law of this state as to tax exemptions for religious, Educational, charitable, benevolent associations and veterans' organizations is clear.¹Memorial halls occupied by organizations of United States war veterans are specifically exempted from property taxation with provision for 'taxing in part' any portion of such memorial hall not used for exempt purposes and used for pecuniary profit.²It is, however, not always clear how these statutes apply to a particular fact situation.To help in such application of the law to the facts of this case, we begin with a brief legislative history.

LEGISLATIVE HISTORY

Since the 1849legislature has granted tax exemption to property of religious, educational, charitable and benevolent associations if not leased or not otherwise used for pecuniary profit.³In 1909, there was added a specific exemption for all memorial halls of war veterans organizations.⁴In an early case, this court held the property of the Turners Society to be a 'single indivisible piece of property' to be taxed in toto if any part of it was used for non-exempt purposes and for profit.The court rejected the 'taxed in part' approach unless or until '* * * some procedure for severance (is) authorized by the legislature.⁵Such legislative authorization, in fact, a legislative mandate to tax only those portions of otherwise exempt property that were in fact being used for non-exempt purposes came in 1931.⁶Additionally, the legislature has provided that renting memorial halls for public purposes shall not render them taxable 'provided that all income derived therefrom be used for the upkeep and maintenance thereof.'⁷The case before us hinges upon the application of the 'taxed in part'statute to the bar and dining room of Alonzo CudworthPost.

WHAT IS THE TEST?

The first interpretation of the 'taxed in part'statute as applied to club, lodge or post property involved a fraternal organization, the Knights of Pythias.⁸However, the test there spelled out applies as well to tax-exempt memorial halls of war veterans organizations.Here is that test:

'Under the statute two things operate to defeat the exemption: (1) The use of any part of the building by nonmembers for which compensation is received; (2) its use by members for purposes outside of the object of such organization.'⁹

USE BY MEMBERS ONLY

Where the clubhouse of a veterans post is used only by its members, or nearly exclusively so, the exempt status is defeated only if such use by its members is for purposes outside the objectives of the organization.The maintenance of clubroom facilities for members, including the serving of food and drinks, is not outside the purposes and objectives of a veterans post which include the promoting of the spirit of comradeship among its members.As this court stated in the Knights of Pythias Case:

'So long as the use is confined to members, the property does not lose its status as exempt property unless it is ued for some purpose 'outside of the objects of such organization.'Certainly recreation is one of the objects of all fraternal associations.The use therefor of the lower floor by members of the lodge did not destroy the exemption * * *'¹⁰

PATRONAGE BY PUBLIC

It is equally settled law in Wisconsin that public patronage of club facilities where money is exchanged for services on a regular basis takes such publicly patronized facilities out of tax-exempt status.This was made clear in a case involving the club home of the Fraternal Order of Eagles Aerie in Madison.There the club operated a dining room, bar, and bowling alley.The dining room was open to the public each day for certain hours; the bowling alley was open to the public on weekends and to outside leagues at other times; the bar was open to nonmembers at the times when they used other facilities.This court upheld a board of review finding that '* * * during public hours the dining room is a public dining room * * * At the times when the various leagues mentioned above are bowling * * * the bowlers are present not because they are Eagles but because they are league membes * * * And so it goes, with the bar and those other parts of the clubhouse which are used at times exclusively for members and at other times nonexclusively for compensation and pecuniary profit.'¹¹Public patronage of a separable facility within a tax-exempt building renders the publicly patronized portion of the building taxable.As this court then said:

'* * * there was both availability of club property for public use plus use by the public; an offer to and an acceptance by the public * * * the Eagles' offer to the public followed by the public's acceptance, manifested by its use of the facilities, for the time being created the facility a public one and destroyed the entire exemption during the period of such use.'¹²

RENTAL OF PREMISES

The question of rental of post premises to outside groups for public purposes is not before us.It is unchallenged that the policy of Alonzo Cudworth Post is that no part of its building is made available for general public functions although a charitable or civic organization may on occasion be allowed to use a hall or room without charge.In any event, it is clear that the exemption statute provides with respect to memorial halls of veterans organizations, that 'the renting of such halls or buildings for public purposes shall not render them taxable, provided that all income derived therefrom be used for the upkeep and maintenance thereof.'¹³

GUEST PRIVILEGES

There is no trouble at the two ends of the spectrum.Clubroom facilities maintained for members only do not affect the otherwise tax-exempt status of an association's property.Club facilities to which the public is invited become public facilities during the times they are so used.The situation here is somewhere in between the two extremes.

We deal here with an established Post policy that members may invite up to nine guests to use the facilities.There is no restriction as to the number of visits such non-member guests may make to the Post.The very term, guest privileges, can have broad or narrow implications.In a state where the family is by statute recognized as the basic unit of society, ¹⁴ there is no reason to consider members of a member's immediate family as outsiders or non-member guests.Similarly, the inter-club exchange privileges that bring fellow members from other local units of the same organization to visit creates no aspect of public or semi-public operation.Similarly, the inviting of prospective members to view Post facilities falls short of seeking or permitting public patronage.It should be clear that we are not speaking of a sharply limited guest privilege.Of such incidental variation from the basic nature of the exempt operation, this court, in another context, held:

'* * * the departure in this case is so slight as to be negligible and therefore to be disregarded * * * (It) does not amount to a sufficient departure to warrant us in saying that the property is not used exclusively for educational and benevolent purposes, particularly where such work is done as incidental to its main purpose.'¹⁵

The same point is made in a subsequent case involving the Cardinal Publishing Company:

'If the portion of the premises so separated and devoted to useful profit is so inconsequential in extent in comparison with the whole property, it may lead to the conclusion that the devotion of the whole property to the exempt uses is in a substantial sense an exclusive use for such purposes * * * If there is no segregation of property and devotion of a portion of it to purposes outside of the corporate objects, but if the whole property in a physical sense is primarily devoted to the purposes of the organization, then the fact that there are occasional or incidental uses of the property for gainW hich is devoted to the purposes of the society claiming the exemption, will not destroy the exemption.'¹⁶

This reasoning applies to 'use by non-members for which compensation is received' as well as use of the property in part or as a whole, for 'purposes outside the objectives of the organization.'If the deviation is comparatively inconsequential it will not destroy the exempt status in whole or part.If there were to be a minor but hardy inconsequential deviation, for example, ten percent of Post patrons being guests or nonmembers, it might be well to remember that this court has held the proportion of public use based on a measurement of the extent of nonexempt use is a permissible approach to tax assessment under sec. 70.11(8), Stats.Where the percent of actual nonmember use of a facility is minor proportion of the total patronage, it might well become the only reasonable approach.

In the case before us the Post's policy as to guests being admitted has few limits.The only limitation seems to be that a Post member may not bring more than nine persons at one time, and an Auxiliary member may not bring more than three guests at any one time.There is no limit on how often a Post member may bring the same individual as his guest.We are not critical of such nearly unrestricted guest privilege.However, it is clearly possible that at any given time there might be more guests than members in the bar or dining room of the Post.Theoretically, there might be nine guests for each member.It is unfortunate that we do not have a record of the use by members and non-members to determine the actual propertion of use by each.Where there is no evidence of what the actual situation was on a...