Yale Club of Chicago v. Department of Revenue

• Decision Date: 09 May 1991
• Docket Number: No. 1-90-1893,1-90-1893
• Citation: 214 Ill.App.3d 468,574 N.E.2d 31
• Parties: , 158 Ill.Dec. 237, 68 Ed. Law Rep. 458 The YALE CLUB OF CHICAGO, Plaintiff-Appellant, v. DEPARTMENT OF REVENUE of the State of Illinois, Defendant-Appellee.
• Court: United States Appellate Court of Illinois

Page 31

574 N.E.2d 31

214 Ill.App.3d 468, 158 Ill.Dec. 237,

68 Ed. Law Rep. 458

The YALE CLUB OF CHICAGO, Plaintiff-Appellant, v. DEPARTMENT OF REVENUE of the State of Illinois, Defendant-Appellee.

No. 1-90-1893.

Appellate Court of Illinois First District, Fourth Division.

May 9, 1991.

Rehearing Denied June 19, 1991.

[214 Ill.App.3d 470] [158 Ill.Dec. 238] Metzger & Associates, Ltd., Chicago (Donald L. Metzger, of counsel), for plaintiff-appellant.

Neil F. Hartigan, Atty. Gen., Robert J. Ruiz, Sol. Gen., of Chicago (Susan Frederick Rhodes, Asst. Atty. Gen., of counsel), for defendant-appellee.

Justice LINN delivered the opinion of the court:

In this action for administrative review, plaintiff, the Yale Club of Chicago ("YCC"), appeals from an adverse decision by the Illinois Department of Revenue, regarding the YCC's status as an educational or charitable organization entitled to a purchaser's sales tax exemption under Illinois law. Ill.Rev.Stat.1987, ch. 120, par. 441(b).

The trial court entered judgment confirming the Department's denial of the sales tax exemption. On appeal, YCC contends that the decision of the Department is contrary to the law and the manifest weight of the evidence.

We affirm.

BACKGROUND

The YCC is an Illinois not-for-profit organization incorporated to promote the welfare of Yale University in Connecticut by assisting in the recruitment of Chicago-area students; raising funds for scholarships; and sponsoring programs in the Chicago area designed to foster continuing support for Yale on the part of its alumni. The organization has no capital, capital stock, or shareholders, and its control and management is vested in an uncompensated board of directors.

The articles of incorporation of the YCC include a statement that the general purposes of the organization shall be exclusively charitable and educational within the meaning of section 501(c)(3) of the Internal Revenue Code. (26 U.S.C. § 501.) The by-laws state the principles and objectives of the YCC:

"The Club is dedicated to the promotion of the welfare of Yale University, the preservation of its traditions of excellence in education and service, and the advancement of its influence and stature in the metropolitan area of Chicago, Illinois. The Club subscribes to the belief that an active and vigorous local alumni association is a primary vehicle to advance such principles."

Philip Moriarty was the only witness to testify during the administrative hearing on the YCC's status as an educational or charitable organization. He has been with the YCC since its incorporation in 1978, serving at different times as president, director, and chairman of the alumni schools committee. According to his testimony, the YCC's operations fall into three categories: (1) activities of the alumni schools committee; (2) Yale-related events; and (3) fund raising for the Yale Club of Chicago Foundation.

One of the main purposes of the YCC is to interview and evaluate applicants to Yale. The alumni schools committee is set up to cover the greater Chicago area and uses 80 volunteer members, who are Yale alumni, to present information about Yale to high school students and parents at area high schools. Although Yale has a staff member from its admissions office assigned to cover Chicago, the University itself does not actively recruit or interview applicants. That function is filled by the YCC volunteers who conduct the interviews. The YCC does not make the decision Membership in the YCC is limited to Yale alumni or parents of the alumni, and current students. Members pay dues. The YCC sponsors events, such as lectures, concerts, and theatrical performances featuring Yale faculty, students, or other Yale-affiliated persons. Only YCC members are invited to these events and they are charged a fee to cover costs of the event.

[158 Ill.Dec. 239] whether a student will be accepted to attend Yale. While it does use guidelines prepared by the University for evaluating prospective students, the YCC does not act under the control and supervision of Yale.

The membership dues and proceeds from the sponsored events pay for administrative expenses first. Any excess or operating profit is divided so that 20% goes to printing and postage for mailings to members. The balance goes to the Yale Club of Chicago Foundation, an organization with the sole purpose of raising funds for scholarships awarded to Chicago-area students of Yale.

On November 14, 1986, the YCC made a written request to the Department for a purchaser's sales tax exemption. On February 2, 1987, the YCC sent additional information in support of its request. On May 8, 1987, the Department responded in writing, stating that alumni associations generally do not qualify as tax-exempt purchasers. The Department also informed the YCC that it would consider any other additional information about its activities that the YCC might regard as pertinent.

The YCC appealed from the denial of its request for tax exemption. An administrative law judge presided over an evidentiary hearing. At the conclusion of the hearing, the administrative law judge recommended the denial of the YCC's petition, stating:

"The taxpayer offered testimony that one of the organization's primary functions was to interview prospective students from the greater Chicago area.

After reviewing the testimony of the Taxpayer and reviewing the exhibits offered by the Taxpayer, the Administrative Law Judge is of the opinion the organization exists primarily for the benefit of its members and fails to meet the definition of exclusively charitable or educational as defined by Illinois courts."

The Department adopted the recommendation. The YCC filed suit for administrative review in the circuit court of Cook County. That court confirmed the Department's decision.

OPINION

The governing statute that allows certain organizations to purchase goods free of the State sales tax provides in relevant part as follows:

"A tax is imposed upon persons engaged in the business of selling tangible personal property at retail at the rate of 5% of the gross receipts from such sales of tangible personal property made in the course of such business, excluding, however, from those gross receipts, * * *

(b) * * * the proceeds of such sales to any governmental body, or to any corporation, society, association, foundation, or institution organized and operated exclusively for charitable, religious or educational purposes * * *." Ill.Rev.Stat.1987, ch. 120, par. 441(b).

The burden is on the party seeking tax exemption and all debatable questions are resolved in favor of taxation. (E.g., Board of Certified Professionals of the Americas, Inc. v. Johnson (1986), 112 Ill.2d 542, 547, 98 Ill.Dec. 363, 494 N.E.2d 485.) Where, as here, the relevant facts are uncontradicted, the issue is one of law and we need not consider whether the decision is contrary to the manifest weight of the evidence. (Cook County Masonic Temple Association v. Department of Revenue (1982), 104 Ill.App.3d 658, 660, 60 Ill.Dec. 341, 432 N.E.2d 1240.) Therefore, the issue in the pending case is whether the YCC has established its entitlement to the exemption of subsection (b), under the law, as a corporation "organized and operated exclusively for charitable, religious or educational purposes."

The YCC asserts that it satisfies the statutory requirement under both the educational and charitable standards. In its challenge to the Department's findings, the YCC argues that any social benefits accruing to its members are incidental and since the evidence does not support a finding of a "primarily social purpose," the decision should be reversed.

We do not agree that the failure of an organization to qualify for tax exemption necessarily means that it is primarily a social club, although a purely social club obviously would not qualify. By focusing on the dichotomy between "social" and "educational or charitable" purposes, the YCC distorts the issue. The administrative law judge did state that the YCC existed primarily for the benefits of its members but did not label those benefits as being social. The judge went on to hold that the YCC failed to meet the "definition of exclusively charitable or educational as defined by Illinois courts." As the courts have held when considering tax-exempt status for real property, the statutory term "exclusively used" refers to primary purpose rather than secondary or incidental purpose. E.g., People ex rel. Nordlund v. Association of the Winnebago Home for the Aged (1968), 40 Ill.2d 91, 101, 237 N.E.2d 533.

The Educational Exemption

To support its position that it qualifies for the purchaser's sales tax exemption based on its educational activities, the YCC cites several cases involving property tax exemptions. For example, in Association of American Medical Colleges v. Lorenz (1959), 17 Ill.2d 125, 160 N.E.2d 763, the court held that an organization need not be a "school" itself to qualify for the educational purposes exemption and found a "real and substantial connection" between the activities of the Association of American Medical Colleges and the intent of the tax exemption for educational purposes. The Association's activities included the accrediting of medical schools, giving admissions tests for medical schools, performing placement functions and evaluating curricula at medical schools, and compiling student information for use in developing programs of instruction. The court found that these functions were identical to those which would afford exemption if performed by each individual member of the Association.

The YCC asserts that its activities, like those of the Association in the above-cited case, served Yale University in ways that have a real and substantial connection with the educational purposes of Yale and would afford tax exemption if Yale performed them itself.

We do not believe that the recruiting and fund-raising activities...