Crooks v. KANSAS CITY HAY DEALERS'ASS'N

• Decision Date: 16 December 1929
• Docket Number: No. 8595.,8595.
• Citation: 37 F.2d 83
• Parties: CROOKS, Collector of Internal Revenue, v. KANSAS CITY HAY DEALERS' ASS'N.
• Court: U.S. Court of Appeals — Eighth Circuit

37 F.2d 83 (1929)

CROOKS, Collector of Internal Revenue, v. KANSAS CITY HAY DEALERS' ASS'N.

No. 8595.

Circuit Court of Appeals, Eighth Circuit.

December 16, 1929.

William L. Vandeventer, U. S. Atty., and Harry L. Thomas, Asst. U. S. Atty., both of Kansas City, Mo., and C. M. Charest, Gen. Counsel, Bureau of Internal Revenue, and Lester L. Gibson, Sp. Atty., Bureau of Internal Revenue, of Washington, D. C., for appellant.

Henry N. Ess, I. N. Watson, John B. Gage, and R. E. Watson, all of Kansas City, Mo., for appellees.

Before KENYON and BOOTH, Circuit Judges, and REEVES, District Judge.

KENYON, Circuit Judge.

Appellee brought suit to recover against appellant, as collector of internal revenue, a certain income tax in the sum of $151.43 claimed to have been illegally collected for the year 1924, and for which refund had been refused by the Commissioner of Internal Revenue. A jury was waived, and the trial court found in favor of appellee, rendering judgment for the amount of the claim.

Appellee is a voluntary association composed of 50 to 60 men who are individually engaged in the business, as brokers or commission merchants, of buying and selling hay and straw on the Kansas City market. It has a constitution and by-laws fixing rights and obligations, and prescribing rules to be followed by the members. It has no capital stock and no shareholders. None of the officers, except the secretary and assistant, receive salaries. The association does not operate any business, but it employs men to inspect, weigh, plug, and watch cars of hay and straw which are bought, sold, or consigned by or to members of the association. Fees are exacted from the shippers for these services and used for the purpose of paying employees. Some years these fees cover the operating expenses, and other years they do not. The constitution and by-laws provide for certain assessments to be made on the members to further the interests of the association. One assessment of $10 per year is to be used in entertainments and the promotion of good fellowship, and there are provisions for fines for various offenses against the rules. There is a membership transfer fee of $50, and originally there was a $5,000 membership fee. The moneys collected by the association are used in furtherance of its purposes, and no part of the same has ever been distributed to any member, and, according to the agreed statement of facts, no part thereof can inure to the benefit of any member. There are no other associations in Kansas City furnishing similar service, so this association does not compete with any business.

Was this association exempt from income tax by virtue of subsection 7 of section 231 of the Revenue Act of 1924 (26 USCA § 982), which exempts from such taxation "business leagues, chambers of commerce, or boards of trade, not organized for profit and no part of the net earnings of which inures to the benefit of any private shareholder or individual"?

It is apparent that, to come within the terms of said statute, appellee must be (1) a business league, chamber of commerce, or board of trade; (2) not organized for profit; and (3) that no part of the net earnings inure to the benefit of any private shareholder or individual.

Appellant contends that appellee is a sort of guild or brotherhood existing entirely for the benefit of its membership and in no way for the benefit of the public, and that Congress intended to exempt only such organizations as were devoted entirely to the general public welfare. Congress did not so say. However, this organization does contribute to the welfare of Kansas City, as the testimony shows that its practices have given such integrity to the hay market there as to make Kansas City the leading hay market of the world.

The object of appellee, as stated in its constitution, is as follows:

"II. * * * To maintain a Hay Association to promote uniformity in the customs and usages of merchants; to inculcate principles of justice and equity in business; to facilitate the speedy adjustment of business disputes; to inspire confidence in the business methods and integrity of the parties hereto; to collect and disseminate valuable commercial and economic information, and generally to secure to its members the benefits of cooperation in the furtherance of their legitimate pursuits and to promote the general welfare of Kansas City."

The association cannot properly be termed a chamber of commerce, which is generally understood to be "a society of the principal merchants and traders of a city who meet to promote the general trade and commerce of the place." 11 C. J. p. 228.

We are not impressed with the argument that appellee association could not be a board of trade because its members are engaged in the same line of business. It is a matter of common knowledge that many boards of trade consist of those who are engaged in similar lines of business; seeking to maintain higher standards of business ethics; and to facilitate buying and selling in their own lines. We see no reason why this association may not come within the term "Board of Trade," which is defined in Webster's New International Dictionary as "a body of men appointed for the advancement and protection of business interests." However, if there be doubt as to that, it certainly is embraced within the term "business league" as used in the statute. Article 518 of Treasury Regulation 45, made and promulgated pursuant to the Revenue Act of 1918, § 1309 (26 USCA § 1245), attempts to define a business league as "an association of persons having some common business interest, which limits its activities to work for such common interest and does not engage in a regular business of a kind ordinarily carried on for profit." The entire definition is too extended to set out, but would seem to cover such an association as is under consideration. "Business" is defined in Black's Law Dictionary as follows: "`Business' is a very comprehensive term and embraces everything about which a person can be employed," which definition is approved by the Supreme Court in Flint v. Stone Tracy Co., 220 U. S. 107, 171, 31 S. Ct. 342, 357, 55 L. Ed. 389, Ann. Cas. 1912B, 1312. "League" is defined in Webster's New International Dictionary as "an agreement or covenant between two or more nations, parties, or persons, for the accomplishment of some purpose by their cooperation." Combining the two definitions of business and league, we can very appropriately say that such a combined definition covers fully the purposes and objects of appellee association, which apparently is a sort of clearing house of information and for assisting those engaged in the hay business in Kansas City; carrying on its work under certain rules and regulations prescribed by the constitution and by-laws. It is an association that is helpful undoubtedly to the members individually, but which is likewise an aid to commerce, and conduces to the general welfare by establishing an honest market for the buying and selling of hay and straw and by assisting in preserving its integrity.

Was the association organized for profit? The by-laws provide certain charges for specific services to be performed for the members, such as weighing, plugging, and watching cars of hay. Provision is made for the sale of loose hay that may be on the tracks. All of these collections go into a general fund. Out of these things, including assessments of some fines, the association in 1924 had a net profit of $3,211.48, which included an item of interest from bank deposits, and an invested return surplus of some $1,000, which it had at that date accumulated. Upon these facts appellant builds its argument that the association was organized for profit.

It is unquestioned that the fees received for weighing, plugging, and watching services have in some years produced a profit to the association, while in other years there has been a deficit. It is the contention of appellee that these charges are merely incidental to the main purpose of the association; that honest weights, honest inspection, and fair dealing are essential to the...