#### JOHN H. PAGE v. THE UNITED STATES

[No. C-1321.

Decided November 15, 1926]

*On the Proofs*

*Taaies; initiation fee; stock in social, athletic or sporting*club.— See *Alliance Country Club*v. *United, States, ante,*p. 579.

*The Reporter's*statement of the case:

*Mr. Lawrence H. Cake*for the plaintiff. *Mr. Alexander Britton*and *Britton & Gray*were on the brief.

*Mr. Alexander H.*McCormick, with whom was *Mr. Assistant Attorney General Herman J.*Galloway, for the defendant.

The court made special findings of fact, as follows:

I. The plaintiff is a citizen of the United States and a resident of Phoenix, Maricopa County, Ariz.

II. Prior to 1919 there was established at Phoenix, Ariz., the Country Club of Phoenix, which was incorporated' October 7, 1911, under the laws of Arizona. The capital stock of the corporation was $50,000, divided into 1,000 shares of the par value of $50 each. For some time prior to 1919 and until the reorganization of the club in November, 1919, the plaintiff was a member of said club and the owner of one share of its capital stock.

III. On October 29, 1919, the stockholders of the Country Club of Phoenix passed at a stockholders’ meeting the following resolution:

“Whereas it appears to the stockholders of the Country Club of Phoenix that the present club facilities have become wholly inadequate and that a new club site is desirable that will afford the needed facilities, and particularly an eighteen-hole grass golf course, easily accessible to a majority of the members of the club; and

“ Whereas an offer has been made of a club site that presents the needed features, upon extremely reasonable terms considering its present worth and the certainty that it will greatly increase in value in the future; and

“Whereas it further appears that it is impracticable, to obtain the money needed to secure said site and to make *591tbe improvements imperatively demanded, under the present organization:

“ Now, *therefore, be it*resolved, That the board of directors of this club be authorized and directed to organize or cause to be organized at once a new club to be named the Phoenix Country Club, or if there be legal objection to this name, some other name to be selected by the board, that shall have an authorized capital stock of not to exceed one hundred and fifty thousand dollars divided into not to exceed six hundred shares of the par value of two hundred and fifty dollars each;

“ That upon the organization of said new club and the taking of subscriptions to its stock that will, in the judgment of its board of directors, realize a sufficient sum for the purpose, said club shall purchase the tract of land known as the Williams Tract, and described as the southwest quarter of section 28, township 2 north, range 3 east, under the proffer made by Mr. F. W. Griffen, representing Mr. E. J. Bennitt and himself, in his letter of October 11th, 1919, addressed to the directors of this club;

“ That said new club shall also purchase the property of this club, to be ultimately disposed of to the best advantage, in consideration of the assumption of the debts of this club and in the further consideration that it shall issue to each stockholder of this club a fractional share of stock equal in face value to one-fifth of the par value of a share of stock of the new club ;

“ That it be further provided that each such fractional share, whenever the holder thereof shall become a subscriber to the stock and become a member of the new club, may be surrendered to the treasurer of the new club and shall be accepted as a part payment to the extent of its face value on a share of the stock of the new club so subscribed, provided that only one such fractional share may be so credited on any one share so subscribed;

“ That as soon as the said Phoenix Country Club shall be organized, the board of directors of this club are authorized and directed to sell, assign, and transfer by proper instruments the property of this club to said new club under the terms and conditions hereinbefore set forth for the purchase thereof by such new club;

“ That said new club shall reserve for a reasonable time for sale to the members of this club as many shares as there are shares of stock outstanding of this club, so as to afford a fair and reasonable opportunity for the members of this club to become members of the said new club before the latter membership shall be filled;

*592“ That it shall be further provided that, after two hundred shares of stock of the new club shall have been subscribed for and paid in full, any shareholder who prior thereto shall have subscribed and paid for more than one share may list his excess shares with the secretary for sale, and the board of directors shall be required to sell said excess shares so listed at par before any new shares shall be sold, a transfer fee of five dollars per share being charged therefor;

“ That after the club membership shall be filled, any stockholder may list his stock with the secretary for sale as above provided, but upon such sale being made the club shall retain a transfer fee of one hundred dollars, paying to the owner the balance of one hundred and fifty dollars, provided, however, in the event any stockholder shall thus list more than one share, the transfer fee of one hundred dollars shall be charged only on the last share of stock owned and so disposed of by said stockholder ;

“ That it be further provided that the membership in the new club shall be limited to three hundred until increased by the vote of at least twenty-five per cent of the stockholders at any regular or called meeting thereof. Each member must be the owner of at least one share of stock, except that it may be provided that ownership of such shares may not be required of nonresident and other classes of limited membership.”

Following the reading of the foregoing resolutions, they were voted upon by roll call. The vote was 115 “ ayes ” and 21 “ noes,” and the chair thereupon declared that the resolutions offered by Mr. Allen had been adopted.

IV. “ARTICLE IX. *Membershif.*

*“*Section 1. Membership in the Phoenix Country Club shall be divided into four classes, namely, resident members, nonresident members, junior members, and temporary members.

“ Sec. 2. A resident member is one who resides within Maricopa County, is an owner of a share of stock of the corporation, and has been duly elected as a member of the club. Ownership of a share of stock of the corporation, however, does not entitle one to membership unless in addition he shall be elected as such by the board of directors and shall pay the full annual dues required of each resident member.

“A nonresident member is one who resides outside of the-county of Maricopa who shall pay the initiation fee and annual dues required of a nonresident member and who shalL be elected as such by the board of directors.

*593“Men under the age of twenty-five years and unmarried women may be admitted as junior members.

“ Temporary members are persons temporarily residing in Maricopa County who are admitted for definite monthly periods not exceeding four months in any one year.

“ Sec. 3. Resident members of the club shall pay annual dues of sixty dollars, payable thirty dollars on the 1st day of October and thirty dollars on the 1st day of February of each year.

“ Nonresident members shall pay annual dues, as follows: Unless a member of the corporation, he shall pay for the first year of his membership one hundred and fifty dollars, payable one-half on October 1 and one-half on February 1 of said year, and thirty dollars per year thereafter, payable on the 1st day of October of each year. If a member of the corporation, he shall pay annual dues from the time of his. election of thirty dollars per year, payable on the 1st day of October of each year.

“ Junior members shall pay the same annual dues as nonresident members.

“ Temporary members shall pay dues as follows: Seventy-five dollars for four months, sixty dollars for three months, forty-five dollars for' two months, and twenty-five dollars for one month.

“ Sec. 4. Junior -male members upon attaining the age of twenty-five years must in order to continue membership become a resident member by becoming a member of the corporation and by paying the annual dues of a resident member.

*“*Sec. 5. Members of the household of any member of the club in good standing may enjoy the privileges of the club, except young men over the age of eighteen years may not enjoy such privileges unless they become junior members.

“ Sec. 6. The resident members of the club shall be limited to three hundred.”

A motion to change the by-laws was made, seconded, and carried that there should be another class of members, to be known as life members; that the initiation fee should be $1,000, and that membership should be without dues.

October 19, 1921, a motion was made, seconded, and carried that the by-laws for nonresident and junior members be changed to the effect that $150 initiation fee, minus the previous year’s dues, would be credited to them upon a subscription for purchase of a share of stock in the club.

*594' V. The Phoenix Country Club was incorporated November 3, 1919, under the laws of Arizona, with an authorized capital stock of $150,000, divided into 600 shares of the par value of $250 each.

VI. November 11, 1919, the board of directors of the Country Club of Phoenix (the old club) passed the following resolution:

“ Be it resolved that, in pursuance of the resolutions adopted at the stockholders’ meeting of the Country Club of Phoenix held October 29, 1919, authorizing and directing this board to sell, assign, and transfer by proper instruments the property of this club to the Phoenix Country Club, in consideration of the assumption of’the debts of this club by said The Phoenix Country Club and the issuance to each shareholder of this club of a fractional share of stock equal in face value to one-fifth of the par value of a share of stock of the Phoenix .Country Club, the President of this club is hereby directed to execute a conveyance of the real estate owned by this club to said The Phoenix Country Club, which said conveyance shall be attested by the secretary of this club, and also to execute a bill of sale of all the personal property owned by this club to said The Phoenix Country Club, which said bill of sale shall also be attested by the secretary of this club.”

Pursuant to this resolution the Country Club of Phoenix conveyed all its real estate to the Phoenix Country Club and transferred and assigned by bill of sale to the Phoenix Country Club all its personal property.

VII. The plaintiff, as a member of the Country Club of Phoenix (the old club) and the owner of one share of its capital stock, was entitled to become a member and did become a member of the Phoenix Country Club and subscribed to one share of its capital stock, par value $250. On December 15, 1919, he paid for his subscription in full by surrendering his one share of stock in the Country Club of Phoenix (the old club), par value $50, and paying in addition $200 in cash.

VIII. Under Article IX of the by-laws of the Country Club of Phoenix, and also under Article IX of the by-laws of the Phoenix Country Club, each member was required to be the owner of at least one share of the capital stock of the corporation.

*595IX. Some persons who were members of the Country Club of Phoenix (the old club) owned more than one share of its capital stock and other persons who were not members of the club owned one or more shares of its capital stock. At the time of the reorganization there were 10 members of the club, each of whom owned two shares of its capital stock, and there was one member who owned three shares. At the same time there were 48 persons not members of the club who owned one share each of its capital stock. There were two persons not members of the club who owned two shares each of its capital stock. There was one person not a member of the club who owned four shares of its capital stock. All except three of said nonmembers who owned stock had at one time been members, but such membership had been forfeited or relinquished.

X. Some members of the Phoenix Country Club own more than one share of its capital stock and other persons who are not members of the club own one or more shares of its capital stock. There are three members of the club who own two shares each. There are 51 persons not members of the club who own one share each. There is one person not a member of the club who owns two shares. All of said nonmembers who owned stock had at one time been members, but such membership had been forfeited or relinquished.

XI. On July 25,1922, the collector of internal revenue for the district of Arizona demanded a tax of $25 from the plaintiff as a tax on “ initiation fees ” under section 801 of the revenue act of 1918. The tax was assessed on the plaintiff’s payment of $250 to the Phoenix Country Club as stated in Finding VI *supra.*

XII. August 8, 1922, the plaintiff paid the tax to the collector of internal revenue at Phoenix, at the same time filing with the collector the following written protest against the exaction:

“ Under protest, that the claimed tax on initiation fees, Phoenix Country Club, is unlawful, and under duress in distraint, I herewith enclose twenty-five ($25.00) in payment of such void tax.”

*596March 21, 1923, the plaintiff filed a claim for refund of the tax so paid. The claim for refund was adjusted by the Commissioner of Internal Revenue September 5, 1923, and was allowed in the sum of $5 and rejected in the sum of $20. A check for $5 was drawn on the Treasurer of the United States, dated September 5,1923, payable to the plaintiff, and was duly forwarded to the plaintiff. The plaintiff has not accepted the adjustment nor cashed the check.

The court decided that plaintiff was entitled to recover $25, with interest thereon from August 8, 1922, amounting to $6.40, in all $31.40.

Hay, *Judge,*

delivered the opinion of the court :

The plaintiff was, in December, 1919, a resident member of the Phoenix Country Club. He became a resident member of said club by complying with the by-laws of said club, which provided that resident members should be required to be the owner of at least one share of the capital stock of the corporation.

On July 25, 1922, the collector of internal revenue for the district of Arizona demanded a tax of $25 from the plaintiff as a tax on “ initiation fees ” under section 801 of the revenue act of 1918. The tax was assessed on the payment by the plaintiff of $250 for one share of the capital stock in the Phoenix Country Club, and upon the theory that his subscription and payment for one share of said stock was an initiation fee paid by him for membership in said club. On August 8, 1922, the plaintiff paid the tax to the collector under protest. On March 21, 1923, the plaintiff filed a claim for refund of the tax so paid. The claim for refund was adjusted by the Commissioner of Internal Revenue on September 5, 1923, and was allowed in the sum of $5, and rejected in the sum of $20. This adjustment the plaintiff refused to abide by, and has brought suit in this court for the amount so paid by him. Section 801 of the revenue act of 1918 reads as follows:

“ Sec. 801. That from and after April 1, 1919, there shall be levied, assessed, collected, and paid, in lieu of the taxes imposed by section 701 of the revenue act of 1917, a tax equivalent to 10 per centum of any amount paid on or after *597such date, for any period after such date, (a) as dues or membership fees (where the dues or fees of an active resident annual member are in excess of $10 per year) to any social, athletic, or sporting club or organization; or (b) as initiation fees to such a club or organization, if such fees amount to more than $10, or if the dues or membership fees (not including initiation fees) of an active resident annual member are in excess of $10 per year; such taxes to be. paid by the person paying such dues or fees: Provided, That there shall be exempted from the provisions of this section all amounts paid as dues or fees to a fraternal society, order, or association, operating under the lodge system. In the case of life memberships a life member shall pay annually, at the time for the payment of dues by -active resident annual members, a tax equivalent to the tax upon the amount paid by such a member, but shall pay no tax upon the amount paid for life membership.”

The regulation of the Treasury Department with respect to initiation fees is to be found in article 13 of regulations No. 43 (revised December, 1920), and reads as follows:

“Art. 13. *Initiation fees.*— The revenue act of 1918 imposes a tax of 10 per cent on any amount paid as initiation fees to any club which is within the terms of the act (see art. 1-7, above) : Provided, That either (a) such initiation fees amount to more than $10, or (b) the regular dues or membership fees (not including extraordinary dues or assessments, or penalties incurred by failure to pay promptly) of ‘ an active resident annual member ’ of such club are in excess of $10 per year. (See art. 12 and the analysis just before art. 11, above.) The term ‘ initiation fee ’ includes any payment to the club required for becoming a member, whether evidenced by a certificate of membership or a share of stock in the club or not.”

Is the payment made by the plaintiff within the terms of the statute? The statute provides for the payment of a “ tax equivalent to 10 per centum of any amount paid * * * as initiation fees to such a club or organization, if such fees amount to more than $10.” In this case the amount paid by the plaintiff was the sum of $250 for one share, par value $250, of the capital stock of the Phoenix Country Club. By subscribing to and paying for this share of stock the plaintiff was entitled to become a member of the club if he was elected to membership by the board of directors of said club. He might have purchased the stock and still *598might not have become a member of the club. In this case the plaintiff was one of a certain number of persons who founded and established the club. His purchase of a share of the stock was not the payment of an initiation fee in the ordinary meaning and common acceptance of those words. An initiation fee is a payment made by a person who wishes to become a member of a social or fraternal club already established, and not the payment by a person who with others founds and establishes a club.

When an initiation fee is paid there is no expectation that the person so paying it will have it refunded. It is a payment which goes to the club for its uses and does not hold out any hope of being returned. In this case under certain contingencies mentioned in the by-laws the share of stock purchased by the plaintiff will be returned to him or to his personal representatives. Thus the subscription to and payment for the share have not the characteristics of “ initiation fees,” the words used in the statute.

Congress in enacting laws does not use words different in meaning from the common and well-understood meaning of the words used. If there is any doubt about their meaning it must be resolved in favor of the taxpayer. We are asked by the Government not to construe the statute but to- enlarge it, so that all payments to clubs, whether in money or by purchase stock, may be included in the words “ initiation fees.” See *Iselin*v. *United*States, decided March 1, 1926, by the Supreme Court of the United States, 210 U. S. 245.

We are of opinion that the plaintiff was not liable for the tax which was collected from him, and judgment will be entered against the United States.

Moss, *Judge;*Graham, *Judge;*Booth, *Judge;*and Campbell, *Chief*Justice, concur.