PEPSI-COLA BOTTLERS'ASSOCIATION, INC. v. United States, No. 15547.

CourtUnited States Courts of Appeals. United States Court of Appeals (7th Circuit)
Writing for the CourtHASTINGS, , and KNOCH and KILEY, Circuit
Citation369 F.2d 250
PartiesPEPSI-COLA BOTTLERS' ASSOCIATION, INC., Plaintiff-Appellee, v. UNITED STATES of America, Defendant-Appellant.
Decision Date10 November 1966
Docket NumberNo. 15547.

369 F.2d 250 (1966)

PEPSI-COLA BOTTLERS' ASSOCIATION, INC., Plaintiff-Appellee,
v.
UNITED STATES of America, Defendant-Appellant.

No. 15547.

United States Court of Appeals Seventh Circuit.

November 10, 1966.


Edward V. Hanrahan, U. S. Atty., Chicago, Ill., Richard M. Roberts, Asst. Atty. Gen., Thomas Silk, Jr., Lee A.

369 F.2d 251
Jackson, Harry Baum, Attys., Dept. of Justice, Washington, D. C., for appellant

Edward H. Hatton, Herbert B. Olfson, Chicago, Ill., for appellee. Raymond, Mayer, Jenner & Block, Chicago, Ill., of counsel.

Before HASTINGS, Chief Judge, and KNOCH and KILEY, Circuit Judges.

KNOCH, Circuit Judge.

The United States of America, defendant-appellant, has taken this appeal from the judgment of the United States District Court holding that the plaintiff-appellee, Pepsi-Cola Bottlers' Association, Inc., was exempt from payment of income tax as a business league and hence was entitled to refund of taxes paid for 1959, after the Internal Revenue Service had refused to grant such exemption.

The facts are largely undisputed. The case was submitted to the Trial Court on a stipulation.

The Internal Revenue Code of 1954, § 501(c) (6) provides an exemption for business leagues not organized for profit, where no part of the net earnings inures to the benefit of any private shareholder or individual.

Membership in the plaintiff organization is limited to individuals, firms, or corporations engaged in the bottling and sale of Pepsi-Cola. As of the end of 1958, about 83% of the Pepsi-Cola bottlers in this country were members. During 1959, about 90% of the members also bottled other soft drinks.

The purposes of the organization are to promote, extend, further, protect, and improve the trade and business of bottling and selling Pepsi-Cola. Each member is free to conduct his business without accountability to the Association or other members. In the event of dissolution, the assets of the plaintiff are to be distributed to the Red Cross or other charitable organizations.

The plaintiff's income comes from dues (calculated upon the number of units of Pepsi-Cola concentrate purchased from the Pepsi-Cola Company per year) and interest. The Pepsi-Cola Company franchises bottlers on certain conditions.

The statute in question is implemented by Treasury Regulations on Income Tax (1954 Code), § 1.501(c) (6)-1 which define an exempt organization as having activities directed to the improvement of business conditions of one or more lines of business as distinguished from the performance of particular services for individual persons.

The government takes the position that the plaintiff fails to qualify as "a line of business," the Commissioner in the past having denied exemption to organizations associated with one particular brand of product. The government sees the appropriate "line of business" here as one embracing all soft drinks. There is a soft drink association to which many of the plaintiff's members belong. The government argues that the plaintiff serves its members solely as a convenience and economy in their business giving benefits only to its members. The government particularly notes that the improvement of ethical standards was not a function of the plaintiff, that function being deliberately left to the aforementioned trade association which serves the soft drink industry as a whole. Further, the government contends that the plaintiff provides valuable services inuring only to the benefit of its members by way of free advice on bookkeeping and accounting methods and management training for younger executives of members — for much of which the financing was procured from the Pepsi-Cola Company.

The Association was organized in 1949 to solve certain problems common to Pepsi-Cola bottlers some of whom felt that the Pepsi-Cola Company took no interest in their problems.

Plaintiff's directors and officers receive no compensation. There is an Executive Secretary who is a salaried employee. The Association represents its members vis-à-vis the Pepsi-Cola...

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4 practice notes
  • National Muffler Dealers Association, Inc v. United States, No. 77-1172
    • United States
    • United States Supreme Court
    • 20 Marzo 1979
    ...test. The court, id., at 847 n. 1, explicitly refused to follow the decision in Pepsi-Cola Bottlers' Assn. v. United States, 369 F.2d 250 (CA7 1966). There, the Seventh Circuit, by a divided vote, had upheld the exempt status of an association composed solely of bottlers of a single brand o......
  • Guide Intern. Corp. v. U.S., No. 90-2441
    • United States
    • United States Courts of Appeals. United States Court of Appeals (7th Circuit)
    • 21 Noviembre 1991
    ...which is not industrywide should not be exempt. 440 U.S. at 484, 99 S.Ct. at 1310. But see Pepsi-Cola Bottlers' Ass'n v. United States, 369 F.2d 250 (7th Cir.1966) (not followed by Rev.Rul. 68-182, 1968-1 C.B. 263 (1968), and disapproved by National Muffler, 440 U.S. at 476, 99 S.Ct. at 130......
  • Bounougias v. Peters, No. 15481-15482.
    • United States
    • United States Courts of Appeals. United States Court of Appeals (7th Circuit)
    • 9 Diciembre 1966
    ...may lead to an over-litigation which jeopardizes substantive rights and which does a disservice to the entire legal system and profession. 369 F.2d 250 Judgment on the merits is now vacated for lack of jurisdiction. This cause is remanded to the district court with instructions to remand it......
  • National Muffler Dealers Ass'n, Inc. v. U.S., No. 252
    • United States
    • United States Courts of Appeals. United States Court of Appeals (2nd Circuit)
    • 21 Noviembre 1977
    ...1 To the extent that our holding is in disagreement with the Seventh Circuit's decision in Pepsi-Cola Bottlers' Ass'n v. United States, 369 F.2d 250 (7th Cir. 1966), we decline to follow the majority opinion in that case. There, the court granted an exemption to a franchisee association com......
4 cases
  • National Muffler Dealers Association, Inc v. United States, No. 77-1172
    • United States
    • United States Supreme Court
    • 20 Marzo 1979
    ...test. The court, id., at 847 n. 1, explicitly refused to follow the decision in Pepsi-Cola Bottlers' Assn. v. United States, 369 F.2d 250 (CA7 1966). There, the Seventh Circuit, by a divided vote, had upheld the exempt status of an association composed solely of bottlers of a single brand o......
  • Guide Intern. Corp. v. U.S., No. 90-2441
    • United States
    • United States Courts of Appeals. United States Court of Appeals (7th Circuit)
    • 21 Noviembre 1991
    ...which is not industrywide should not be exempt. 440 U.S. at 484, 99 S.Ct. at 1310. But see Pepsi-Cola Bottlers' Ass'n v. United States, 369 F.2d 250 (7th Cir.1966) (not followed by Rev.Rul. 68-182, 1968-1 C.B. 263 (1968), and disapproved by National Muffler, 440 U.S. at 476, 99 S.Ct. at 130......
  • Bounougias v. Peters, No. 15481-15482.
    • United States
    • United States Courts of Appeals. United States Court of Appeals (7th Circuit)
    • 9 Diciembre 1966
    ...may lead to an over-litigation which jeopardizes substantive rights and which does a disservice to the entire legal system and profession. 369 F.2d 250 Judgment on the merits is now vacated for lack of jurisdiction. This cause is remanded to the district court with instructions to remand it......
  • National Muffler Dealers Ass'n, Inc. v. U.S., No. 252
    • United States
    • United States Courts of Appeals. United States Court of Appeals (2nd Circuit)
    • 21 Noviembre 1977
    ...1 To the extent that our holding is in disagreement with the Seventh Circuit's decision in Pepsi-Cola Bottlers' Ass'n v. United States, 369 F.2d 250 (7th Cir. 1966), we decline to follow the majority opinion in that case. There, the court granted an exemption to a franchisee association com......

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