Masonic Country Club of Western Michigan v. Holden

• Decision Date: 27 April 1926
• Docket Number: No. 3143.,3143.
• Citation: 12 F.2d 951
• Parties: MASONIC COUNTRY CLUB OF WESTERN MICHIGAN v. HOLDEN, Collector of Internal Revenue.
• Court: U.S. District Court — Western District of Michigan

12 F.2d 951 (1926)

MASONIC COUNTRY CLUB OF WESTERN MICHIGAN v. HOLDEN, Collector of Internal Revenue.

No. 3143.

District Court, W. D. Michigan, S. D.

April 27, 1926.

William K. Clute, of Grand Rapids, Mich., for plaintiff.

Edward J. Bowman, U. S. Atty., and Howard A. Ellis, Asst. U. S. Atty., both of Grand Rapids, Mich., for defendant.

TUTTLE, District Judge.

This is an action by the Masonic Country Club of Western Michigan, a nonprofit Michigan corporation, to recover from the defendant, Charles Holden, United States collector of internal revenue for the Western District of Michigan, the sum of $10 which plaintiff paid to him, under protest, as such collector, and which it now seeks to recover on the ground that such sum was wrongfully and illegally assessed and collected from it as an internal revenue tax, and that therefore plaintiff is entitled to a refund thereof. It appears that plaintiff has duly applied, in accordance with the applicable statutory procedure and to the proper executive officials, for such refund, which has been denied by such officials. A motion to dismiss the declaration was overruled, and after the filing of a plea of the general issue a jury was waived by written stipulation, filed pursuant to section 649 of the United States Revised Statutes (Comp. St. § 1587), and the case was heard by the court without a jury.

The questions involved relate to the construction and applicability of section 801 of the Internal Revenue Act of 1921 (42 Statutes at Large, p. 291 Comp. St. Ann. Supp. 1923, § 6309 5/8b) imposing a tax on initiation fees to certain clubs and organizations. That section provided as follows:

"That from and after January 1, 1922, there shall be levied, assessed, collected, and paid, in lieu of the taxes imposed by section 801 of the Revenue Act of 1918, a tax equivalent to 10 per centum of any amount paid on or after such date, for any period after such date, (a) as dues or membership fees (where the dues or fees of an active resident annual member are in excess of $10 per year) to any social, athletic, or sporting club or organization; or (b) as initiation fees to such a club or organization, if such fees amount to more than $10, or if the dues or membership fees (not including initiation fees) of an active resident annual member are in excess of $10 per year; such taxes to be paid by the person paying such dues or fees: Provided, that there shall be exempted from the provisions of this section all amounts paid as dues or fees to a fraternal society, order or association, operating under the lodge system. In the case of life memberships a life member shall pay annually, at the time for the payment of dues by active resident annual members, a tax equivalent to the tax upon the amount paid by such a member, but shall pay no tax upon the amount paid for life membership."

Section 802 of the same act (Comp. St. Ann. Supp. 1923, § 6309 5/8c) provided as follows:

"That every person, receiving any payments for such admission, dues, or fees, shall collect the amount of the tax imposed by section 800 or 801 from the person making such payments. Every club or organization having life members, shall collect from such members the amount of the tax imposed by section 801. In all the above cases returns and payments of the amount so collected shall be made at the same time and in the same manner and subject to the same penalties and interest as provided in section 502."

Section 502, thus referred to (42 Statutes at Large 284 Comp. St. Ann. Supp. 1923, § 6309 1/3c), included the following provision:

"That each person receiving any payments referred to in section 500 shall collect the amount of the tax, if any, imposed by such section from the person making such payments, and shall make monthly returns under oath, in duplicate, and pay the taxes so collected to the collector of the district in which the principal office or place of business is located."

Plaintiff is a social club incorporated under Act 84 of the Michigan Public Acts of 1921, which provides for the organization of corporations "not for pecuniary profit." Its articles of incorporation state its purposes and objects to be "to operate and maintain a clubhouse and grounds for the comfort, pleasure, entertainment, recreation, and amusement of members of lodges of Free and Accepted Masons and members of chapters of the Order of the Eastern Star as the same are regularly constituted, who become members of the corporation, and for such purposes to acquire, own and improve the necessary real estate, and erect buildings thereon and construct fields and courses for all kinds of athletic field sports and pastimes, and to acquire and own the necessary personal property convenient and useful in carrying out the above purposes."

The articles of incorporation provide for capital stock divided into shares of the par value of $100 each, to be sold to eligible and approved subscribers. Plaintiff is authorized by section 7 of the act under which it is organized "to fix the amount of the membership fees of dues which members may be required to pay initially or periodically, as a condition of admission or retention as such members."

Article VII of plaintiff's by-laws contains the following provisions:

"Section 1. Membership shall be limited to such persons as are members in good standing in some lodge of Free and Accepted Masons organized under the jurisdiction of the Grand Lodge of Michigan or in fraternal relations with such Grand Lodge or members in good standing in some chapter of the Eastern Star organized under the jurisdiction of the Grand Chapter O. E. S. of Michigan or in recognized relations therewith and who have been elected by the board of directors pursuant to the by-laws to honor roll life membership or regular life membership. Such Masonic affiliation and election shall in each case be the prerequisite to membership. Mere stock ownership by purchase from the club or otherwise shall not entitle such owner to membership or to the enjoyment of the use and privileges of the clubhouse and grounds.

"Section 2. Honor roll life membership is defined to be a member who has been duly elected to such membership by the board of directors and who shall become the owner by purchase from the club within two years from the date of its organization of ten or more shares of the original (present authorized) issue of the capital stock of the corporation. This class shall not exceed one hundred. The sums paid for such stock shall be deemed and considered as the amount paid for such honor roll life membership. From any surplus of income available for that purpose the corporation shall have the right but shall be under no obligation to purchase from honor roll life members all but one of their shares of stock at par on giving to such member thirty days notice of intention so to do. Stock so purchased shall be placed in the treasury and be subject to sale by the board of directors at not less than par.

"Section 3. Regular life members shall be those elected as such by the board of directors pursuant to the by-laws. Regular life members shall be deemed those having prerequisites as provided in section 1 of this article and who meet the provisions of article VIII, section 2, and have been duly elected to such membership in the club.

"Article VII, Sec. 3a. In addition to the other classifications of membership and subject to the limitations of section 1 of this article there is hereby created and established an active annual resident membership. Such membership shall consist only of members resident in Kent county, Michigan. Application therefor shall be made in substantial conformity to the provisions of section 7 of this article, designating this class of membership applied for. The duration of an active annual resident membership shall be limited to the current year in which such application is made. The initiation fee of active annual resident members shall be one hundred ($100) dollars, payable with the application. There shall also be paid with the application an additional sum of $10 for annual club dues for the current club year. This membership shall in each case terminate with the expiration of the current club year, but shall be subject to renewal from year to year within 30 days from and after expiration of each club year, but not later by the payment of annual club dues of $10 for each current year within such 30-day period."

No application for this so-called "active annual resident membership" has ever been received by the club. Article VIII of the by-laws includes the following provisions:

"Section 1. Honor roll life members shall not be required to pay any initiation fee or stated annual dues.

"Section 2. The life membership fee for regular life members shall be one hundred dollars, payable on the filing of the application: Provided, however, that if at the time of the filing of the application the applicant shall be the owner by purchase from the corporation of not less than one or more than nine fully paid shares of its capital stock then such applicant shall not be required to pay the above life...