Highlanders v. State

• Decision Date: 20 June 1906
• Citation: 77 Neb. 18,108 N.W. 183
• Parties: ROYAL HIGHLANDERS v. STATE ET AL.
• Court: Nebraska Supreme Court

77 Neb. 18

108 N.W. 183

ROYAL HIGHLANDERS

v.STATE ET AL.

Supreme Court of Nebraska.

June 20, 1906.

Syllabus by the Court.

A fraternal beneficiary association, conducted for the mutual benefit of its members and for the purpose of providing a fund for the payment of stated dues and fees from such members for the payment of a special amount upon the death of each member to a beneficiary named by him, is not a charitable association, and its property and funds are not used exclusively for charitable purposes so as to be exempt from taxation by the laws of this state.

Where the Legislature has passed an act providing for a new system of raising revenue, and has thereby changed the former methods of procedure relating to matters of taxation, the courts, in construing its provisions, are not bound by any administrative construction of the former revenue law.

Under the rule established by the decisions of this court for the taxation of credits, a fraternal beneficiary association is entitled to set off the amount of its outstanding beneficiary certificates matured and unmatured, against securities in its fidelity or mortuary fund, set apart and devoted exclusively to the payment of such certificates.

Appeal from District Court, Hamilton County; Evans, Judge.

Petition of the Royal Highlanders, praying for a judgment declaring its property exempt from taxation and reversing the assessment by the county board. From a judgment in favor of the state, and the county of Hamilton, the Royal Highlanders appeal. Reversed.

Sedgwick, C. J., dissenting.

Hainer & Smith, for appellant.

Norris Brown, Atty. Gen., and M. F. Stanley, for appellees.

Brome & Burnett, amicus curiæ.

BARNES, J.

This case is before us on appeal from a judgment of the district court of Hamilton county, affirming the order of the board of equalization of that county in the matter of the assessment of the property of appellant (Royal Highlanders, a domestic fraternal beneficiary association) for taxation, for the year 1905. It appears that the association is duly organized under the laws of this state, and has its home office and principal place of business at Aurora, in Hamilton County; that in May, 1905, in response to the demand of the county assessor of said county, the association delivered to him a schedule of its property, from which it appears that it was the owner of certain lots in the city of Aurora, Hamilton county, Neb., and the building situated thereon, of the cost and value of $21,238.56; that it had on hand furniture, fixtures, and office supplies of the value of $1,200; that it had money in the banks of Aurora amounting to $13,666.31; that it owned securities deposited as a credit, with the auditor of public accounts of the state of Nebraska, amounting to $455,900, which credit was its mortuary fund deposited under the provisions of the statutes governing the affairs of such associations, the same having been collected and set apart for the payment of its debt due and to become due on the beneficiary certificates issued to and held by its members. All of said property was claimed by the association to be exempt from taxation, for the reason that it was used exclusively for charitable purposes. It was further claimed that the mortuary fund so deposited with the auditor of public accounts was not subjectto taxation because the association had the right to set off the amount of its obligations or debts due, and to become due, on said beneficiary certificates against said credit, which would leave it no net credit for taxation. Thereupon the assessor duly entered all of said property on the tax lists of said county for assessment. Thereafter the association appeared before the county board of equalization and filed its petition and protest claiming said property, and all thereof, as exempt, for the reasons stated in its schedule. The board made an order sustaining the assessment, as made by the assessor, and the association appealed to the district court of Hamilton county. To maintain its position in that court the association filed its petition, setting forth more particularly and at large the matters contained in its protest, and prayed for a judgment declaring its property wholly exempt from taxation, and reversing the order of the county board. To this petition the Attorney General and the county attorney of Hamilton county filed a general demurrer, which was sustained. The association excepted, elected to stand upon its said petition, offered evidence in support of all of the allegations thereof, which evidence was excluded, and thereupon the court rendered judgment against the association, affirming the order of the board of equalization, and dismissing the appeal of the association at its costs.

It may be stated, in passing, that it clearly appears from the petition that the appellant is a fraternal beneficiary association, organized under the provisions of chapter 43 of the Compiled Statutes of 1903 of this state, having a lodge system with ritualistic form of work, and a representative form of government; that it is formed, organized, and carried on for the sole benefit of its members and their beneficiaries, and not for profit; that for and in consideration of certain stipulated payments in the form of fees and dues it issues beneficiary certificates on the lives of its members, payable after their death to beneficiaries named therein in manner and form as provided by its by-laws and the statutes of this state governing such associations; that it has its fidelity or mortuary fund, amounting to $455,900, deposited with the auditor of public accounts, which fund is set apart and pledged by said association, and by law, for the payment of its beneficiary certificates due and to become due, and constitutes a trust fund for that purpose, and for no other. That of its credit balance at the banks, $12,174.98 belongs to said fund, and the remainder thereof, amounting to $491.34, represents a fund used for the purpose of paying the running expenses of the association. The foregoing is an abridged statement of the facts shown by the record, but is quite sufficient as a basis for this opinion.

1. Appellant's first contention is that its entire property is exempt from taxation, because it is used exclusively for charitable purposes. This question must be determined, not by what the association professes to be, but by what it really is, and the nature of the business it conducts. The general trend of judicial opinion in this country is that organizations like the appellant are, in effect, mutual insurance companies. In State v. Live Stock Ass'n, 16 Neb. 549, 20 N. W. 852, it was held that an association which insured only the property of its members by a policy in the form of a certificate of membership, for a premium paid simply as an admission fee, and by assessing its members to pay for the losses sustained by such certificate holders, was, to all intents and purposes, a mutual insurance company. Again, in State v. Farmers' Benevolent Ass'n, 18 Neb. 276, 25 N. W. 81, the court, speaking of associations like the appellant, said: “Courts have, with a great degree of unanimity, treated all such organizations as substantially life insurance companies, applying to them and to the mutual relations of the members the rules and principles applicable to the contract of life insurance.” The appellant classes itself as exclusively a charitable organization, but, from an examination of its by-laws, called “Original Edicts,” it appears that it is conducted for the sole benefit of its members and their beneficiaries. Its declared purposes are: “First, to unite for mutual benefit and fraternal protection all white persons of sound physical health and exemplary character, between the ages of eighteen and sixty-five; and to bestow substantial benefits upon the beneficiaries of its membership, admitted between the ages of eighteen and forty-eight years, who are entitled thereto. Second, to cheer and aid the unfortunate, to comfort and provide for the sick and aged, and to bury with becoming honor the dead of our membership. Third, to educate its members socially, morally, and intellectually, promulgating by ritualistic degrees the principles of prudence, fidelity and valor. Fourth, to establish and maintain funds for the purpose of paying all benefits provided for the members and their beneficiaries, and to defray the expense of management and promotion.” All of these purposes are confined to its members, and are dependent upon the payment by them of the assessments required by the by-laws. Beneficiary members get what is paid for, and nothing more. If they cease to pay, they cease to receive. Members continue to pay for the benefit of another, not because of any charitable or benevolent impulse, but because they expect, upon their death, that those whom they are interested in, or bound by law or ties of affection to provide for, will receive the amount which it is agreed in the beneficiary certificate will be paid by the association to such beneficiary. This is neither charity nor benevolence. Payment to the beneficiary does not depend upon his or her financial condition. A wealthy child or widowof the assured member would be entitled to claim the amount named in his certificate, equally with one poor or needy. This benefit is paid because of so much money, and so many assessments, paid by the assured member. This benevolence or charity is purely of a commercial character. It does not seek out the needy, but invites only the ablebodied and healthy. It is a business arrangement. The beneficiary receives payment because of a contract obligation on the part of the association to make such payment. In State v. Miller, 66 Iowa. 34, 23 N. W. 241, the court held that: “The Ancient Order of United Workmen, an association of practically the same character as the appellant, is a life insurance company; that its fraternal character was simply an...