University of Oregon Co-Op. Store v. State, Dept. of Revenue, CO-OPERATIVE

CourtSupreme Court of Oregon
Writing for the CourtMcALLISTER
Citation542 P.2d 900,273 Or. 539
PartiesUNIVERSITY OF OREGONSTORE (non profit), Appellant, v. STATE of Oregon, DEPARTMENT OF REVENUE, Respondent.
Decision Date20 November 1975

Page 900

542 P.2d 900
273 Or. 539
Supreme Court of Oregon.
Argued and Submitted Sept. 5, 1975.
Decided Nov. 20, 1975.

[273 Or. 540]

Page 901

James P. Harrang and John L. Franklin of Johnson, Johnson & Harrang, Eugene, argued the cause and filed briefs for appellant.

Alfred B. Thomas, Asst. Atty. Gen., Salem, argued the cause for respondent. With him on the brief was Lee Johnson, Atty. Gen.


McALLISTER, Justice.

The University of Oregon Co-Operative Store seeks exemption from corporate excise taxes payable to the State of Oregon under ORS Chapter 317 and a refund for taxes paid in tax years 1967, 1968 and 1969. The Co-Op bases its claim for exemption on ORS 317.080(4). 1 A hearing was held before the Department [273 Or. 541] of Revenue and the Co-Op's claim for exemption was denied. 2 The Co-Op appealed to the Oregon Tax Court, which sustained the Department of Revenue's opinion and order. 3 The Co-Op has appealed from the decree of the Tax Court. We reverse.

The Co-Op was organized by the Associated Students of the University of Oregon in 1920 to fill the book and supply

Page 902

needs of the faculty and the students. Membership in the Co-Op is limited to students, faculty and staff of the University of Oregon. The board of directors during the period involved in this case consisted of seven members, two of whom were elected by the faculty members and five of whom were elected by the student members. Members pay an annual membership fee of fifty cents.

Article II of the Articles of Incorporation of the Co-Op state the corporate purpose as follows:

'The purpose of this association, and the enterprise, business and pursuit in which it propose(s) to engage is to make available to the students at the University of Oregon and persons directly associated with such college the benefits of cooperative purchasing and merchandising; to unite such persons in a cooperative group so that they may obtain the maximum buying power possible from their income; and to afford to such persons the articles, supplies, and materials necessary and desirable for school, living, and recreational purposes while attending or associated with the University of Oregon.'

In the event of dissolution or liquidation of the Co-Op, the articles provide that all of the assets will inure to the University of Oregon.

[273 Or. 542] Ninety-nine per cent of all the sales by the Co-Op are made to members. No parking is provided for the public, and the Co-Op's advertising is almost all through the student newspaper. The Co-Op is located adjacent to the campus. It is part of the campus mail system and telephone system. It serves as a distribution point for the school newspaper and provides a bulletin board for student notices. The Co-Op also serves as a polling place for student elections.

Sixty per cent of the Co-Op's total volume of sales is textbooks; fifteen per cent is of trade books (primarily reference books recommended by the faculty); twenty per cent is school supplies; five per cent is athletic equipment and non-educational items. The Co-Op's cost of doing business is approximately twenty-one per cent. The standard markup of textbooks sold by the Co-Op is twenty per cent.

Books, both titles and quantity, are ordered upon the request of the faculty. About thirty per cent of the books ordered each year are not sold because of an overestimate of enrollment, purchases of used books in lieu of new and other causes. This results in a considerable loss to the Co-Op since most publishers will not accept more than a twenty per cent return.

Used books are repurchased from the students at their request as an added service to the student body.

Arrangements have been made by the University of Oregon Business Office for faculty members to order directly from the Co-Op supplementary books and documents necessary for faculty use in classroom instruction. Prior to the Business Office directive, such orders had been placed with the University of Oregon library. The library continues to supply faculty requests for periodicals.

Membership in the Co-Op entitles the member to [273 Or. 543] an annual rebate. The rebate is computed after all operating expenses have been paid and reasonable sums have been set aside to reserve accounts and the capital account. The surplus funds are then distributed based on the percentage of net sales of business transacted with the claiming member during that school year. Unclaimed rebates are used to expand the inventory and as working capital. This eliminates the need to borrow heavily in the summer to purchase books for the fall.

Over eighty per cent of the college bookstores in the nation are owned by the colleges the serve. This is primarily because college bookstores are not profitable.

The Co-Op is a nonprofit corporation, organized under the co-operative corporation laws of the State of Oregon. From 1920 to 1939 the Co-Op leased from a private lessor space off the campus, but immediately adjacent, on the northwest corner

Page 903

of 13th and Kincaid. In 1939 the University of Oregon needed additional classroom space, but the University was unable to fund a new building. The federal government was willing to make a grant to the University under the Public Works Administration program, but the University needed to provide some cash contribution. Upon the invitation of the University to meet this income need, the Co-Op negotiated a twenty-year lease for the basement floor of the projected classroom building. Chapman Hall was built and the Co-Op occupied the basement from 1939 to 1966. The University supplied janitorial service. The Co-Op's move in 1966 was due to its need for more floor space. The Co-Op purchased and moved into a building next to its old location on the northwest corner of 13th and Kincaid.

The sole issue is whether the Co-Op is an exempt [273 Or. 544] corporation under ROS 137.080(4) as a corporation operated exclusively for educational purposes, no part of the net earnings of which inures to the benefit of any private stockholder or individual.

ORS 317.080(4) is borrowed from the Federal Internal Revenue Code. 4 When an Oregon statute has been copied from federal law this court will adopt the interpretation given the federal act by the federal courts. Pac. Supply Co-op v. State Tax. Com., 224 Or. 556, 560, 356 P.2d 939 (1960); Santiam Fish & Game Ass'n v. Tax. Com., 229 Or. 506, 512, 368 P.2d 401 (1962). 'In the absence of judicial construction, administrative construction is informative, and unless clearly at variance with the express terms of the statute, is entitled to respect. * * *' 224 Or. at 560, 356 P.2d at 941.

In the interpretation of tax law this court has considered as persuasive authority the interpretation given the borrowed statute by the federal courts After its adoption in Oregon and as informative the interpretation given the statute by the Internal Revenue Service After its adoption in Oregon. 229 Or. at 512--532, 368 P.2d 401. The reason is that the Oregon legislature has been continually revising the Oregon tax laws 5 to bring them into closer conformity to the federal tax laws and undoubtedly was aware of the federal interpretation given the federal statutes from which the Oregon statutes were copied. Ore. Physicians' Serv. v. State Tax. Com., 220 Or. 487, 494, 349 P.2d 831 (1960). It is apparent that the Oregon legislature intendseconomic[273 Or. 545] transactions to have similar consequences under both federal and state law. Hardwick v. Dept. of Revenue, Or., 535 P.2d 89 (1975). 6

The Co-Op has been granted tax exemption by the Internal Revenue Service. This is in accord with its interpretation of its code provision as illustrated by Rev.Rul. 58--194, 1958--1 Cum.Bull. 240. In that case a corporation organized for the purpose of operating a book and supply store and a cafeteria and restaurant on the campus of a university sought a tax exemption. The board of directors of the corporation consisted of the president of the university, three elected faculty representatives, and three elected student representatives. Membership was by nominal fee paid by regular employees and students of the university.

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Nonmembers had to pay a small service charge on bookstore purchases. The Internal Revenue Service found that:

'* * * the corporation was organized for the purpose of furthering the educational...

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