Case Name: HCSC-LAUNDRY v. UNITED STATES
Court: Supreme Court of the United States
Jurisdiction: United States
Decision Date: 1981-02-23
Citations: 450 U.S. 1
Docket Number: No. 80-338
Parties: HCSC-LAUNDRY v. UNITED STATES
Judges: Justice White dissents and would set the case for plenary consideration.
Reporter: United States Reports
Volume: 450
Pages: 1–23

Head Matter:
HCSC-LAUNDRY v. UNITED STATES
No. 80-338.
Decided February 23, 1981

Opinion:
Per Curiam.
Petitioner HCSC-Laundry is a Pennsylvania nonprofit corporation. It was organized in 1967 under the law of that Commonwealth "[t]o operate and maintain a hospital laundry and linen supply program for those public hospitals and non-profit hospitals or related health facilities organized and operated exclusively for religious, charitable, scientific, or educational purposes that contract with [it]."
Petitioner provides laundry and linen service to 15 nonprofit hospitals and to an ambulance service. All these are located in eastern Pennsylvania. Each organization served possesses a certificate of exemption from federal income taxation under § 501 (c) (3) of the Internal Revenue Code of 1954, 26 U. S. C. § 501 (c)(3). Each participating hospital pays petitioner annual membership dues based upon bed capacity. The ambulance service pays no dues. Petitioner's only other income is derived from (a) a charge for laundry and linen service based upon budgeted costs and (b) a charge of 1% cents per pound of laundry. Budgeted costs include operat ing expenses, debt retirement, and linen replacement. The amounts charged in excess of costs have been placed in a fund for equipment acquisition and replacement.
No part of petitioner's net earnings inures to the benefit of any individual.
Petitioner was formed after the Lehigh Valley Health Planning Council determined that a shared, nonprofit, off-premises laundry would best accommodate the requirements of the member hospitals with respect to both quality of service and economies of scale. The Council had investigated various alternatives. It had rejected a joint service concept because no member hospital had sufficient laundry facilities to serve more than itself. A commercial laundry had declined an offer for the laundry business of all the hospitals, and most of the other available commercial laundries were not capable of managing the heavy total volume.
Petitioner's laundry plant was built and equipped at a cost of about $2 million. This was financed through loans from local banks, with 15-year contracts from 10 of the hospitals used as collateral. Petitioner employs approximately 125 persons.
In 1976, petitioner applied for exemption under § 501 (c) (3) from federal income taxation. The Internal Revenue Service denied the exemption application on the grounds that § 501 (e) of the Code was the exclusive provision under which a cooperative hospital service organization could qualify as "an organization organized and operated exclusively for charitable purposes" and therefore exempt. Because subsection (e)(1) (A) does not mention laundry, the Service reasoned that petitioner was not entitled to tax exemption.
Petitioner duly filed its federal corporate income tax return for its fiscal year ended June 30, 1976. That return showed taxable income of $123,521 and a tax of $10,395. The tax was paid. Shortly thereafter, petitioner filed a claim for refund of that tax and, when the Internal Revenue Service took no action on the claim within six months, see 26 U. S. C. § 6532 (a)(1), petitioner commenced this refund suit in the United States District Court for the Eastern District of Pennsylvania.
On stipulated facts and cross-motions for summary judgment, the District Court ruled in favor of petitioner, holding that it was entitled to exemption as an organization described in § 501 (c) (3). 473 F. Supp. 250 (1979). The United States Court of Appeals for the Third Circuit, however, reversed. It held that § 501 (e) was the exclusive provision under which a cooperative hospital service organization could obtain an income tax exemption, and that the omission of laundry services from § 501 (e)(l)(A)'s specific list of activities demonstrated that Congress intended to deny exempt status to cooperative hospital service laundries. 624 F. 2d 428 (1980).
Because the ruling of the Court of Appeals is in conflict with decisions elsewhere, we grant certiorari, and we now affirm.
This Court has said: "The starting point in the determination of the scope of 'gross income' is the cardinal principle that Congress in creating the income tax intended 'to use the full measure of its taxing power.' " Commissioner v. Kowalski, 434 U. S. 77, 82 (1977), quoting from Helvering v. Cliford, 309 U. S. 331, 334 (1940). See § 61 (a) of the Code, 26 U. S. C. § 61 (a). Under our system of federal income taxation, therefore, every element of gross income of a person, corporate or individual, is subject to tax unless there is a statute or some rule of law that exempts that person or element.
Sections 501 (a) and (c) (3) provide such an exemption, and a complete one, for a corporation fitting the description set forth in subsection (c) (3) and fulfilling the subsection's requirements. But subsection (e) is also a part of § 501. And it expressly concerns the tax status of a cooperative hospital service organization. It provides that such an organization is exempt if, among other things, its activities consist of "data processing, purchasing, warehousing, billing and collection, food, clinical, industrial engineering, laboratory, printing, communications, record center, and personnel (including selection, testing, training, and education of personnel) services." Laundry and linen service, so essential to a hospital's opera tion, is not included in that list and, indeed, is noticeable for its absence. The issue, thus, is whether that omission prohibits petitioner from qualifying under § 501 as an organization exempt from taxation. The Government's position is that subsection (e) is controlling and exclusive, and because petitioner does not qualify under it, exemption is not available. Petitioner takes the opposing position that § 501 (c) (3) clearly entitles it to the claimed exemption.
Without reference to the legislative history, the Government would appear to have the benefit of this skirmish, for it is a basic principle of statutory construction that a specific statute, here subsection (e), controls over a general provision such as subsection (c)(3), particularly when the two are interrelated and closely positioned, both in fact being parts of § 501 relating to exemption of organizations from tax. See Bulova Watch Co. v. United States, 365 U. S. 753, 761 (1961).
Additionally, however, the legislative history provides strong and conclusive support for the Government's position. It persuades us that Congress intended subsection (e) to be exclusive and controlling for cooperative hospital service organizations. Prior to the enactment of subsection (e) in 1968, the law as to the tax status of shared hospital service organizations was uncertain. The Internal Revenue Service took the position that if two or more tax-exempt hospitals created an entity to perform commercial services for them, that entity was not entitled to exemption. See Rev. Rul. 54-305, 1954-2 Cum. Bull. 127. See also § 502, as amended, of the 1954 Code, 26 U. S. C. § 502. This position, however, was rejected by the Court of Claims in Hospital Bureau of Standards and Supplies, Inc. v. United States, 141 Ct. Cl. 91, 158 F. Supp. 560 (1958). After expressly noting the uncertainty in the law, Congress enacted subsection (e). See Revenue and Expenditure Control Act of 1968, Pub. L. 90-364, § 109 (a), 82 Stat. 269.
In considering the provisions of the tax adjustment bill of 1968 that ultimately became subsection (e), the Senate sought to include laundry in the list of services that a cooperative hospital service organization could provide and still maintain its tax-exempt status. The Treasury Department supported the Senate amendment. See 114 Cong. Rec. 7516, 8111-8112 (1968). At the urging of commercial interests, however (see Hearings on Certain Committee Amendments to H. R. 10612 before the Senate Committee on Finance, 94th Cong., 2d Sess., 608 (1976)), the Conference Committee would accept only a limited version of the Senate amendment. In recommending the adoption of subsection (e), the managers on the part of the House emphasized that shared hospital service organizations performing laundry services were not entitled to tax-exempt status under the new provision. See H. R. Conf. Rep. No. 1533, 90th Cong., 2d Sess., 43 (1968); Senate Committee on Finance and House Committee on Ways and Means, Revenue and Expenditure Control Act of 1968, Explanation of the Bill H. R. 15414, 90th Cong., 2d Sess., 1, 20 (Comm. Print 1968).
Later, in 1976, at the urging of the American Hospital Association, the Senate Committee on Finance proposed an amendment that would have added laundry to the list of services specified in subsection (e)(1)(A). Hearings on H. R. 10612 before the Senate Committee on Finance, 94th Cong., 2d Sess., 2765-2772 (1976); S. Rep. No. 94-938, pt. 2, pp. 76-77 (1976). The amendment, however, was defeated on the floor of the Senate. 122 Cong. Rec. 25915 (1976).
In view of all this, it seems to us beyond dispute that subsection (e)(1)(A) of § 501, despite the seemingly broad general language of subsection (c)(3), specifies the types of hospital service organizations that are encompassed within the scope of § 501 as charitable organizations. Inasmuch as laundry service was deliberately omitted from the statutory list and, indeed, specifically was refused inclusion in that list, it inevitably follows that petitioner is' not entitled to tax-exempt status. The Congress easily can change the statute whenever it is so inclined.
The judgment of the Court of Appeals is affirmed.
It is so ordered.
Justice White dissents and would set the case for plenary consideration.
The quoted language is from petitioner's articles of incorporation, as amended May 29, 1970. The articles further state that petitioner's corporate purposes are to be accomplished "in a manner consistent with the provisions of Section 501 (c) (3) of the- Internal Revenue Code of 1954." See 624 F. 2d 428, 429, n. 1 (CA3 1980).
Subsections (a) and (c) of §501, to the extent pertinent here, read: "(a) Exemption from taxation
"An organization described' in subsection (c) or (d) or section 401 (a) shall be exempt from taxation under this subtitle unless such exemption is denied under section 502 or 503.
"(c) List of exempt organizations
"The following organizations are referred to in subsection (a):
"(3) Corporations, and any community chest, fund, or foundation, organized and operated exclusively for religious, charitable, scientific, testing for public safety, literary, or educational purposes, or to foster national or international amateur sports competition (but only if no part of its activities involve the provision of athletic facilities or equipment), or for the prevention of cruelty to children or animals, no part of the net earnings of which inures to the benefit of any private shareholder or individual, no substantial part of the activities of which is carrying on propaganda, or otherwise attempting, to influence legislation (except as otherwise provided in subsection (h)), and which does not participate in, or intervene in (including the publishing or distributing of statements), any political campaign on behalf of any candidate for public office."
Section 501 (e) reads:
"(e) Cooperative hospital service organizations
"For purposes of this title, an organization shall be treated as an organization organized and operated exclusively for charitable purposes, if—
"(1) such organization is organized and operated solely—
"(A) to perform, on a centralized basis, one or more of the following services which, if performed on its own behalf by a hospital which is an organization described in subsection • (c) (3) arid exempt from taxation under subsection (a), would constitute activities in exercising or performing the purpose or function constituting the basis for its exemption: data processing, purchasing, warehousing, bitting and collection, food, clinical, industrial engineering, laboratory, printing, communications, record center, and personnel (including selection, testing, training, and education of personnel) services; and
"(B) to perform such services solely for two or more hospitals each of which is—
"(i) an organization described in subsection (c) (3) which is exempt from taxation under subsection (a),
"(ii) a constituent part of an organization described in subsection (c) (3) which is exempt from taxation under subsection (a) and which, if organized and operated as a separate entity, would constitute an organization described in subsection (c)(3), or
"(iii) owned and operated by the United States, a State, the District of Columbia, or a possession of the United States, or a political subdivision or an agency or instrumentality of any of the foregoing."
Among the eases in conflict with the Third Circuit's ruling are Northern California Central Services, Inc. v. United States, 219 Ct. Cl. 60, 591 F. 2d 620 (1979), and United Hospital Services, Inc. v. United States, 384 F. Supp. 776 (SD Ind. 1974). See also Chart, Inc. v. United States, 491 F. Supp. 10 (DC 1979) (appeals pending, Nos. 80-1138 and 80-1139 (CADC)).
Decisions in accord with the ruling of the Third Circuit include Hospital Central Services Assn. v. United States, 623 F. 2d 611 (CA9 1980), cert. denied, post, p. 911, and Metropolitan Detroit Area Hospital Services, Inc. v. United States, 634 F. 2d 330 (CA6 1980). See also Associated Hospital Services, Inc. v. Commissioner, 74 T. C. 213, 231 (1980) (reviewed by the court, with four dissents; appeal pending, No. 80-3596 (CA5)).
Since the enactment of subsection (e), the Internal Revenue Service has adhered to its view that laundry service provided by a cooperative hospital service organization is not entitled to exemption under § 501. See Rev. Rul. 69-160, 1969-1 Cum. Bull. 147; Rev. Rul. 69-633, 1969-2 Cum. Bull. 121.
See S. Rep. No. 744, 90th Cong., 1st Sess., 200-201 (1967); H. R. Conf. Rep. No. 1030, 90th Cong., 1st Sess., 73 (1967); 114 Cong. Rec. 7516, 8111-8112 (1968).
We do not agree with the suggestion made by the Court of Claims in Northern California Central Services, Inc. v. United States, 219 Ct. Cl., at 67, 591 F. 2d, at 624, that Congress "may have wished not to encourage cooperative hospital laundries by new tax exemptions, to which commercial laundries made vehement objections, yet to leave such laundries free to obtain from the courts the exemptions that existing law might afford them." The extended hearings, the Committee considerations, and the floor debates all reveal that Congress was well informed on the issue and made a deliberate decision. We necessarily recognize that congressional choice.
The Commissioner never expressly announced a nonacquiescence in this decision. However, in an apparent response to the Hospital Bureau case, the feeder regulation, § 1.502-1 (b), was amended in several respects in 1963. See T. D. 6662, 1963-2 Cum. Bull. 214, 215-216. See also Associated Hospital Services, Inc. v. Commissioner, supra, at 219.