Okla. Tax Comm'n v. Sisters Mother

• Citation: 97 P.2d 888,1939 OK 539,186 Okla. 339
• Decision Date: 12 December 1939
• Docket Number: Case Number: 29199
• Parties: OKLAHOMA TAX COMMISSION v. SISTERS OF THE SORROWFUL MOTHER
• Court: Supreme Court of Oklahoma

1939 OK 539

97 P.2d 888

186 Okla. 339

OKLAHOMA TAX COMMISSION v. SISTERS OF THE SORROWFUL MOTHER

Case Number: 29199

Supreme Court of Oklahoma

Decided: December 12, 1939

Syllabus

¶0 1. TAXATION--"Use tax"--Exemption of charitable organizations - Intent of Legislature

In determining the intent of the Legislature as to whether tax levied under article 11, ch. 66, S. L. 1937, known as the "Use Tax" is to be collected from charitable organizations in certain cases and without regard to the use of the net income of such organizations, the court will consider the history of the act and kindred legislation.

2. SAME -- Statutes construed -- Charitable organization held not exempt from payment of use tax where engaged in business producing income in excess of operating expense, and such business coming in competition with other persons, irrespective of use to which net income may be applied.

Section 2, art. 11, S. L. 1937, levies and calls for the collection, from every person using within this state any article of tangible personal property purchased, leased, rented or exchanged subsequent to the passage of the act, an excise tax for the privilege of using such property. The tax so levied is to an amount equal to two (2%) per centum of the purchase price as defined in section 3 of the act. By section 5, the act is made not to apply in respect to tangible personal property specifically exempted from taxation under the then existing law assessing a sales or consumers tax upon the sale of tangible personal property. Article 10, ch. 66, S. L. 1937, was the law then in force assessing the sales or consumers tax. Section 6 of the latter act specifically exempts from said tax "(i) the gross receipts or gross proceeds derived from the sale of tangible personal property, or service to charitable organizations, except where such organizations may be engaged in business for profit or savings, competing with other persons engaged in the same or similar business." Held, that where a charitable organization is engaged in a business which is designed to and does produce an income in excess of the operating expense thereof, and such business is such that it comes in competition with other persons engaged in the same or similar business, such charitable organization is not exempt from the payment of the "use tax," irrespective as to what use the net income from said business may be applied.

Appeal from District Court, Oklahoma County; Sam Hooker, Judge.

Action by Sisters of the Sorrowful Mother, a corporation, against the Oklahoma Tax Commission to recover taxes paid under protest. Judgment for plaintiff, and defendant appeals. Reversed and remanded.

Dick Jones, A. L. Herr, and C. D. Stinchecum, all of Oklahoma City, for plaintiff in error

T. Austin Gavin, of Tulsa, for defendant in error.

RILEY, J.

¶1 This is an appeal by the Oklahoma Tax Commission from a judgment in favor of the defendant in error in an action commenced by the latter to recover taxes paid under protest.

¶2 The parties will be referred to as they appeared in the trial court. Plaintiff is a charitable organization organized as a corporation under the laws of the state of Wisconsin, and is authorized to do business in the state of Oklahoma. The business in which plaintiff is engaged in this state is the operation of a hospital in the city of Tulsa.

¶3 In February, 1938, defendant assessed a use tax against plaintiff, including penalty and interest in the sum of $404.38. The assessment was made under the provisions of article 11, ch. 66, S. L. 1937, Title 68, ch. 29, Okla. Stat. Ann., designated and known as the "Use Tax, 1937." The period of time in which the tax is assessed is from June 1, 1937, to January 1, 1938.

¶4 Plaintiff paid the tax penalty and interest under protest and commenced this action to recover same.

¶5 The validity of the act levying the tax is not questioned.

¶6 Plaintiff claims exemption from the tax under the provisions of subdivision (e) of the section 5 of the act and subdivision (i) of section 6, art. 10, ch. 66, S. L. 1937.

¶7 In this connection plaintiff alleges and claims that: "It is a charitable corporation or organization, and is not engaged in business for profit or savings, competing with other persons engaged in the same or similar business."

¶8 The contention of defendant is that "plaintiff is engaged in the hospital business, and in conducting said business treats various patients that may apply for treatment; that it is engaged in said business for profit or savings, and that in conducting said business it is competing with other persons engaged in the same or similar business."

¶9 The cause was submitted upon a stipulation as to certain facts, and evidence was taken as to certain other facts. The stipulation for the most part covers formal matters concerning which there is no controversy. From said stipulation it appears that plaintiff owns and operates a hospital in the city of Tulsa known as St. John's Hospital; that the tax in question was assessed against plaintiff representing 2 per centum on articles purchased by plaintiff outside the state of Oklahoma, brought into the state during the period above mentioned and used by plaintiff.

¶10 It then stipulated:

"* * * That the plaintiff in this case is a charitable organization and that it does not operate its business for the purpose of earning a profit which would inure to the benefit of any individual, that any money it may earn in excess of its operating expenses is used by it in extending its facilities for carrying on its hospital and hospital work and charitable work."

¶11 With respect to the extent of the above stipulation, it was then stated by Mr. Gavin, counsel for plaintiff:

"I am not certain exactly what his theory is, whether he intends to restrict the stipulation merely to the words contained in the statute, namely, profits, and exclude the item of savings."

¶12 To which Mr. Cund, counsel for defendant, replied:

"That is right."

¶13 Plaintiff then presented as a witness one of the Sisters, who testified in substance that she was and had been for about one year the superintendent of the hospital. That when patients came to the hospital no inquiry was made as to whether they were able to pay, but only what kind of a room they wanted, and how much they desired to pay. That some patients could pay and some could not. Those who could not pay were taken the same as those who could pay, but as a rule those who could not pay were not given separate rooms, but for the most part were placed in wards. None were turned away because of inability to pay.

¶14 All the Sisters who were members of the religious organization known as the Sisters of the Sorrowful Mother are members of the corporation. The corporation has no capital stock, but has by-laws.

¶15 She then testified in substance as to how the hospital was built. Its original cost was about $1,000,000, $500,000 of which was donated by citizens of Tulsa, and the remainder was paid by the corporation. Probably the greater part of that paid by the corporation came from other hospitals in other states; that the corporation operates in all 13 hospitals in several states; that all money which comes in over and above operating expenses is used in upkeep and building new additions; that since the hospital was constructed, $500,000 has been expended for additional building; of this sum $100,000 was donated by Waite Phillips; that the corporation intends in the future, as needs arise and funds are available, to erect other buildings; that during the year 1937, about 5,647 patients were received and treated in the hospital, 3,140 were "paying" patients, 923 were "partial pay" patients, 553 were public charges, and 1,029 were full charity patients.

¶16 During 1937, receipts from patients were $254,392.67, and for the first nine months of 1938 receipts were $195,564.19. All of this was paid out on the nurses' home and upkeep of the place. Upkeep, we presume, includes operating expenses.

¶17 The articles of incorporation were introduced in evidence, showing, among others, the following provisions:

"2. The said corporation is formed and shall be without capital stock, and no dividend, salary, wages or pecuniary profits of whatever kind shall ever be declared or paid any of its members.

"3. This corporation is organized for the purpose of establishing, maintaining and conducting in the state of Wisconsin or elsewhere hospitals for the sick and for the insane, training schools for nurses, homes for the aged, elementary schools, orphan asylums and other charitable institutions for the benefit of, to be connected with, and under the control of the religious community of Sisters known as 'The Sisters of the Sorrowful Mother,' the headquarters of which community are located in the city of Marshfield, Wood county, and state of Wisconsin."

¶18 And:

"8. All property, both real or personal, of whatever kind, nature of description, which shall be owned or acquired by this corporation, and which may be lawfully conveyed to or held by it, either by devise, gift, grant, purchase or otherwise, shall be vested in this corporate name and shall be devoted solely to the objects and purposes of this corporation, and all deeds, notes and mortgages, contracts, indentures, and conveyances made by such corporation to any corporation, person or persons, shall be signed, executed, acknowledged and delivered by the President and Secretary of this corporation, provided, however, that the Sister Superior of any institution owned or controlled by this corporation shall have the power to endorse checks, drafts and notes, to make and sign any contracts not involving notes or real estate, if such contracts are necessary for the proper conducting of the business affairs of said institution."

¶19 There are four other hospitals in the city of Tulsa doing a general hospitalization business.

¶20 None of the members of the corporation receive any salary or compensation for...