Growers Cold Storage Co. v. Commissioner of Internal Revenue
| Decision Date | 07 November 1929 |
| Docket Number | Docket No. 19859. |
| Parties | GROWERS COLD STORAGE CO., PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. |
| Court | U.S. Board of Tax Appeals |
George H. Koster, Esq., for the petitioner.
C. H. Curl, Esq., for the respondent.
The Commissioner determined a deficiency of $26.93 for 1922. Petitioner claims (1) that it is a business league not organized for profit and no part of its net earnings inures to the benefit of any private stockholder or member, and therefore it is exempt from taxation under section 231 (7) of the Revenue Act of 1921, and (2) that its entire income is derived from assessments against members for the sole purpose of paying operating expenses, and that any excess is not profit or taxable net income.
FINDINGS OF FACT.
The petitioner is a corporation organized under the laws of California, with its principal office at 5050 Alameda Street, Los Angeles, Calif. It was organized under the provisions of Title 22, Part 4, of the Civil Code of California, relating to the formation and operation of purely nonprofit cooperative corporations, and its purpose was to provide cold storage facilities for its members at cost on a cooperative plan. The members of the corporation were fruit growers, or dealers, or both, and petitioner's facilities were used to store and preserve their products until sale and delivery.
Title 22, Part 4, of the Civil Code of California provides in part as follows:
653t. Non-profit co-operative corporations may be formed by the voluntary association of any three or more persons in the manner prescribed in this title. A majority of such persons must be residents of this state, and such corporations shall have and may exercise the powers authorized by this title, and the powers necessarily incident thereto, and also all other powers granted to private corporations by the laws of this state, excepting such powers as are inconsistent with those granted by this title. 1921-465.
653u. Such corporation shall not issue capital stock, but shall issue a membership certificate to each member. Its business shall not be carried on for profit. Any person or any number of persons including and in addition to the original incorporators, may become members of such corporation upon such terms and conditions as to the membership, and subject to such rules and regulations as to their, and each of their, contract and other rights and liabilities between it and the member, as the said corporation shall prescribe in its by-laws. The corporation shall issue a certificate of membership to each member, but the said membership or the said certificate thereof, shall not, except as herein provided, be assigned by any member to any other person, nor shall the assigns thereof be entitled to membership in the corporation, or to any property rights or interest therein, nor shall a purchaser at execution sale, or any other person who may succeed, by operation of law or otherwise, to the property interests of the member, be entitled to membership, or become a member of the corporation by virtue of such transfer. The board of directors may, however, by motion duly adopted by it, consent to such assignment or transfer, and to the acceptance of the assignee or transferee as a member of the corporation.
The corporation shall also have the right, by its by-laws, to provide for or against the transfer of membership and for or against the assignment of membership certificates, and also the terms and conditions upon which any such transfer or assignment shall be allowed. 1941-465.
653zc. Nothing in this title shall be deemed to prohibit any co-operative corporation formed or existing hereunder from having and exercising the same powers in carrying out its purposes as are enjoyed or exercised by corporations which issue capital stock.
Any corporation formed or existing under this title shall conduct and carry on its business without profit to itself; it may, however, conduct its business for the profit of its members; it may use or employ any of its facilities for any purpose except the handling for others, not members, of products similar to the products handled for its members, provided the proceeds arising from such use and employment shall go to reduce the cost of operation for its members.
The purposes of the corporation are set forth in paragraph 2 of its articles of incorporation, as follows:
That the purposes for which said corporation is formed are:
To lease, purchase or otherwise to acquire and to hold, own, enjoy, lease, let, sell, exchange, mortgage, pledge, hypothecate, and otherwise to encumber and in any way to deal in and with all and every kinds of real and personal property or property rights and any and all interests therein.
To lease or to acquire, by purchase or to construct, and to own, control, maintain and operate a complete plant for the common or cold storage and preservation of fruit and other products and to engage in the business of storing fruit and other products.
To enter into contracts of any and all kinds; to borrow money and to hypothecate any or all of its property as security therefor; and to loan money and as security therefor or as security for any obligation due or owing to it to accept and to enforce mortgages, pledges and hypothecations of real and personal property.
To do anything and everything necessary, proper or expedient to accomplish any of the purposes hereinabove enumerated or to the exercise of any of the powers vested in such corporation by the laws of the State of California.
The corporation had no capital stock. Membership therein was denominated a "membership," or "unit." There were 20 units and each member was required to own one unit. During the taxable year the 20 units were owned by seven members, as follows: Howard L. Rivers, 10 units, H. S. Darling, 4 units, F. L. Sellick, 2 units, and L. P. Cikuth, C. J. Rodgers, Yucaipa Valley Fruit Co., and P. Stolich, 1 unit each.
In order to defray the expenses of maintenance and operation monthly assessments were made against members according to the number of units owned by each, and where there was a surplus of assessments over expenses, article XIII of the by-laws provided as follows:
At the end of each fiscal year, the board of directors shall determine the amount of the surplus moneys, if any, remaining in the treasury of the corporation, (exclusive of any surplus accumulated as in this article permitted) and the same shall be distributed to the members in proportion to the number of memberships owned by each. Provided, however, that wherever, in the opinion of the board of directors, it shall be necessary to carry on the business of the corporation, said board may postpone the distribution of such surplus or of any part thereof, and may cause the same to be accumulated for use as a revolving fund; but at no time shall the surplus so accumulated exceed in amount the sum of $20,000. Whenever the board of directors shall elect to postpone the distribution of any such surplus, it shall cause to be issued to each of the members a certificate of indebtedness, for the amount of his share of the surplus distribution of which is postponed, which cert ficate shall be payable, without interest, when so ordered by the board of directors or upon the dissolution of the corporation and on surrender of the certificate.
Petitioner had no other source of income except that occasionally it performed labor in unloading and loading trucks or cars of produce for members or nonmembers who were selling to or purchasing from...
To continue reading
Request your trial