Merchants Club v. United States, 46304.

• Decision Date: 03 June 1946
• Docket Number: No. 46304.,46304.
• Citation: 66 F. Supp. 126,106 Ct. Cl. 562
• Parties: MERCHANTS CLUB v. UNITED STATES.
• Court: U.S. Claims Court

66 F. Supp. 126

106 Ct. Cl. 562

MERCHANTS CLUB v. UNITED STATES.

No. 46304.

Court of Claims.

June 3, 1946.

John C. Reid, of Washington, D.C. (Ivins, Phillips & Barker, of Washington, D.C., on the brief), for plaintiff.

Fred K. Dyar, of Washington, D.C., and Sewall Key, Acting Asst. Atty. Gen., for defendant.

Before WHALEY, Chief Justice, and LITTLETON, WHITAKER, JONES, and MADDEN, Judges.

JONES, Judge.

The single issue in this case is whether the plaintiff is a social, athletic, or sporting club or organization within the meaning of Section 1710 of the Internal Revenue Code, and as such subject to the tax therein provided.

Section 1710 of the Internal Revenue Code, 53 Stat. 192, as amended by Sec. 543 (a) of the Revenue Act of 1941, 55 Stat. 687, 711, 26 U.S.C.A. Int.Rev.Code, § 1710, contains the following provision:

"(a) Rate. There shall be levied, assessed, collected, and paid —

"(1) Dues or membership fees. A tax equivalent to 11 per centum of any amount paid as dues 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."

Section 1711, 26 U.S.C.A. Int.Rev.Code, § 1711, reads as follows:

"Exemptions from Tax

"There shall be exempted from the provisions of section 1710 all amounts paid as dues or fees to a fraternal society, order, or association, operating under the lodge system, or to any local fraternal organization among the students of a college or university."

Taxes for the year 1943 and 1944 in the sum of $12,016.81 were levied and collected by the Collector of Internal Revenue.

Plaintiff filed a timely claim for refund on the ground that such taxes had been illegally collected.

The club was incorporated in 1871 and has operated continuously since that time.

The number of resident members is limited to 375 and the number of nonresident members to 150. The initiation fee for resident members is $150 and the dues $125 a year. The clubhouse is a two-story building, erected for the club, on Thomas Street in New York City.

On the first floor are the office, a barbershop, coatroom, washrooms, lounge, three private dining rooms and a bar. The main dining room, which is 60 feet by 50 feet, and the kitchen, which is 50 feet by 25 feet, are on the second floor. A storeroom, iceboxes, and laundry room are located in the basement. A number of magazines including Time, Life, Fortune, The New Yorker, Esquire, Sketch, Punch, and Illustrated London News, together with several daily papers, the Textile World and the Journal of Commerce, are available in the lounge; there is also a radio.

The main dining room is equipped to seat 154 people. The club serves about 1,000 lunches a week. The gross receipts from the dining room average about $8,000 a month, and those from the bar about $400 a week. Business guests are frequently served. Guest cards are issued to out-of-town visitors. Members' wives rarely visit the club and are not permitted on club premises except in the company of the member. The club is open only on work days during working hours. It opens at 8:00 a. m. The kitchen is closed at 4:00 p. m. and the bar at 7:00 p. m. although frequently for lack of patronage the bartender closes up and goes home about 5:30 p. m.

The club has no facilities for the playing of games. In fact, games of all kinds are forbidden by club rules. It has no dances or similar functions, and is a daytime club. The main use of the club is during the luncheon period. Only occasionally do the members use the club in the morning or after 2:30 in the afternoon unless they are attending a special business meeting in one of the private dining rooms. The club is used extensively for business meetings following the serving of luncheon.

Most of the club's resident members are directly connected with the selling of cotton textiles, only 82 of the 484 active members on January 1, 1945, being engaged in miscellaneous occupations, including insurance, hardware, banking, paper, law, food and other businesses.

While most of the members of the club are in the textile business, the fact that an individual is in that business gives him no right as such to join the club. Admissions are on the basis of personal accomplishment. Applicants must be acceptable to the general membership and an effort is made to obtain a congenial group who can function together agreeably. Various subjects are discussed during the period when the members are in the clubhouse. Frequently discussions relate to the textile industry in which most of the members are interested, but often the conversations cover a wide range of subjects, and opinions are freely expressed. A spirit of good fellowship prevails and an opportunity is given for indulging in friendly conversation with congenial individuals.

The question is presented as to how the club should be classified within the meaning of the Revenue Law for purposes of taxation.

Section 1710 of the Internal Revenue Code, supra, imposes a tax on any amount paid as dues or membership fees to any social, athletic, or sporting club or organization if the dues or fees of the individual are in excess of $10 a week.

The only exception is set out in Section 1711 and applies to a fraternal society, order, or association operating under the lodge system, or to a local...