Epstein v. United States

• Decision Date: 18 March 1966
• Docket Number: No. 20-63.,20-63.
• Citation: 357 F.2d 928
• Parties: A. S. EPSTEIN v. The UNITED STATES.
• Court: U.S. Claims Court

357 F.2d 928 (1966)

A. S. EPSTEIN v. The UNITED STATES.

No. 20-63.

United States Court of Claims.

March 18, 1966.

George T. Altman, Beverly Hills, Cal., attorney of record, for plaintiff.

Philip R. Miller, Washington, D. C., with whom was Acting Asst. Atty. Gen., C. Moxley Featherston, for defendant. Lyle M. Turner and Joseph P. Spellman, Washington, D. C., of counsel.

Before COWEN, Chief Judge, WHITAKER, Senior Judge, and LARAMORE, DAVIS, and COLLINS, Judges.

PER CURIAM:

This case was referred pursuant to former Rule 45(a) (now Rule 57(a)) to Trial Commissioner Herbert N. Maletz with directions to make findings of fact and recommendation for conclusions of law. The commissioner has done so in an opinion and report filed on October 30, 1964. The plaintiff has excepted to the opinion and certain of the findings of fact. The parties have filed briefs and the case has been argued orally. Since the court agrees with the commissioner's findings, his opinion and his recommended conclusions of law, as hereinafter set forth, it hereby adopts the same as the basis for its judgment in this case. This result is in accord with and is supported by the recent decision of the 9th Circuit in United States v. Howe, 349 F.2d 483 (1965). Plaintiff is therefore not entitled to recover and the petition is dismissed.

OPINION OF COMMISSIONER

Plaintiff, an individual who was owner and operator of the "Club Del Mar" in Santa Monica, California, sues to recover excise taxes which he paid on monthly membership dues and members' annual locker rental charges for the period from January 1, 1959 to October 31, 1960. Such taxes were assessed under section 4241(a) (1) of the Internal Revenue Code of 1954 which imposes: "A tax equivalent to 20 percent of any amount paid as dues¹ or membership fees to any social, athletic, or sporting club or organization, if the dues or fees of an active resident annual member are in excess of $10 per year."² The principal issues as stipulated by the parties are (1) whether the Club Del Mar was a club or organization within the meaning of the section; (2) if so, whether it was a "social, athletic, or sporting club or organization"; and (3) whether, in any event, refund is barred by section 6415 of the Code.³

The Club Del Mar was built in 1926 and was acquired by plaintiff in 1958. The property consisted of a main building of six stories, bearing in front the title "Del Mar Hotel and Club", and an adjacent private beach fronting on the Pacific Ocean. On the lobby floor (which was the third floor of the building) were a hotel registration desk, a hotel office, a reception desk, a gift counter and shop, a club office, a large club lounge, two banquet rooms, a large ballroom which also served as a restaurant, and another restaurant and bar overlooking the ocean. On the fourth floor was another banquet room. On the remainder of the fourth floor and on the fifth and sixth floors were hotel rooms numbering 120 in all.

On the second floor of the building (i. e., the floor below the lobby), there was a laundry and ladies' locker rooms. The floor below that (which was the ground floor from the beach side) had a large Olympic-size indoor swimming pool; men's locker rooms; a men's and a women's gymnasium each containing various kinds of apparatus used for physical exercise and conditioning; storage area; and a beauty shop and barber shop. The swimming pool had a balcony which was part of the second floor.

The private beach, which was connected to the main building by an underpass running beneath a public way, was bounded by fences along two boundaries and by a cafeteria and paddle tennis court fences along the third. The remaining boundary of the beach was unfenced and bordered on a public beach belonging to the State. Signs reading "Club Del Mar" were placed along the open line of the club beach and efforts were made to keep members of the general public out therefrom. Club facilities on the beach consisted of the cafeteria, a restaurant, volleyball and paddle tennis courts, and a children's playground.

The facilities of the Club Del Mar were not open or held out as open to the general public except for the beauty shop and barber shop which had entrances both on the street and inside the premises. Concessionaires operated these shops and had instructions to restrict their outside trade from entering into the other areas of the property. In the event an outside customer desired to go into such areas, the concessionaire was required to call a membership salesman to take him through.

As a further means of controlling access to the club's premises, persons coming into the lobby from the street were stopped and asked to indicate why they were there. However, the club's facilities were not limited to club members and their guests. Any person could rent a hotel room (a 10% discount therefor being granted to members) and by doing so have, during the period of his stay, the use of all the facilities and beach on the same basis as members. Further, anyone, whether a member of the club or not, could arrange for the use of various of the club's facilities for luncheons, cocktail parties, wedding receptions, fashion shows, charity benefits, business affairs, etc. Those putting on such functions could invite anyone they wished, whether members or not, and once on the premises those attending such affairs could go anywhere they pleased in the facility, although as a practical matter the beach facilities were used mainly by club members and hotel guests. At least one-third of the food and beverage business in the facility came from banquets and affairs given by outside organizations, while the other two-thirds of that business was obtained from members, members' guests, hotel guests and guests of hotel guests.

Various services in the club were provided by concessionaires, which services included (in addition to those provided by the beauty and barber shops) dancing, bridge and swimming lessons, and massages. One did not have to be a club member to obtain these services; however, most concessionaire customers (other than those using the beauty and barber shops) were, in fact, either club members or persons who would very soon become such. In the event a member of the general public came into the lobby from the front entrance for purpose of obtaining the services of a concessionaire, he would be directed to that concessionaire and at the same time solicited to become a member of the club. In the time a concessionaire's customer was on the club's premises, he could have the run of its facilities.

During the period in issue, the Club Del Mar engaged in an extensive membership campaign consisting, among other things, of newspaper advertisements and mail-outs, which included copies of the club magazine "Club Del Mar Life" and membership application blanks. The promotional literature, as well as the application blanks, represented that the Club Del Mar was an all-year family beach club with recreational and social activities for the whole family and possessing the following features: the most beautiful private beach in the world; health facilities; men's and ladies' gyms; steam rooms; Olympic-heated pool; tennis courts; children's playground; recreation; dinner dancing Friday, Saturday and Sunday with name bands; teenage parties; bridge and dance lessons; and excellent food at modest prices. In addition, thousands of folders were mailed out with a courtesy guest card attached to each entitling the bearer and his party to one day's use of facilities on the same basis as a member. Other persons were also allowed to use the club's facilities on a trial basis for a day, although such persons were encouraged to obtain a guest card. Plaintiff, however, discouraged anyone from using the private beach and other athletic and health facilities on a day-by-day basis for a fee.

As part of the promotional effort, some ten to twenty salesmen were employed to solicit club memberships. This they did by analyzing the family's needs, pointing out the facilities such as beach, gymnasium, etc., which were available for each member of the family, and indicating that the club had dinner dancing, fashion shows, etc. New members were also obtained through current members by offering the latter cash incentives, free tickets to an honor roll ball, and prizes for those who brought in the most members, such as trips to Hawaii, television sets, etc.

For purpose of promoting the hotel business, plaintiff also distributed a brochure to travel agencies throughout the country. The brochure entitled "The Del Mar Hotel and Restaurant" gave the same address as the Club Del Mar and contained a detailed description of the hotel and club premises, including the gymnasium and beach.

During the pertinent period the initiation fee for a family membership was $100.00 for all but several months, while the monthly dues were $12.00, which dues were the same regardless of the number of times the facilities were used. Some advertisements stated that the monthly dues were $12.00 including tax; other advertisements stated that the monthly dues were $10.00 plus tax. The membership application blanks stated that monthly dues were $12.00 "including federal tax" or which "includes federal taxes". In addition to the monthly dues, members using the swimming pool or beach were required to use a club locker for which (during most of the relevant period) there was an annual rental charge of $24.00. The club's "Locker Room Rules" (which were contained in the by-laws) specified in this connection that the "Members' annual locker fees * * * are $20.00 annually plus tax." The monthly dues and the annual locker rental were accounted for on the club's books as follows (as plaintiff was aware): (1) of the $12.00 dues, $10.00 was allocated to club dues income and $2.00 to excise tax liability; (2) of the $24.00 locker fee, $20.00 was allocated to locker rental income and $4.00 to...