Court Opinion

ID: 4498964
Source: CourtListenerOpinion
Date Created: 2020-01-23 18:16:13.406739+00
Date Added: 2024-06-11T14:54:17.001381
License: Public Domain

Muedock,
dissenting: I am impressed by tbe broad, general public service rendered by this corporation. It was organized by the National Board, itself an exempt corporation. The organization and operation of the petitioner was for a combination of educational, scientific, and charitable purposes. It was charitable, in the broad sense of that term, since it tended to promote the well-doing and well-being of social man. Ould v. Washington Hospital, 95 U. S. 303. The word “charitable” is used in the act in its broadest sense and includes scientific and educational activities. United States v. Proprietors of Social Law Library, 102 Fed. (2d) 481. Exemption is granted in recognition of the benefit derived by the public and is intended to aid the exempt corporation when it is not conducted for private gain. Trinidad v. Sagrada Orden de Predicadores, 263 U. S. 578. This corporation was rendering a tremendous service to the public.
The primary purpose of this corporation was to advise and safeguard the public so that hazards to which people and property are subjected would be avoided or minimized. The activities of the petitioner were directed to a very broad purpose, to the investigation and study of the relation of various materials, devices, systems, conditions, etc., to certain life and property hazards, in an effort to ascertain and publish for public use and benefit information that would advise the public how best to avoid or minimize such hazards. That, to my mind, is a charitable purpose. Without that purpose, in fact unless it was successful in that purpose, the petitioner could in nowise serve any other purpose. That is, any benefit which it may have been to the manufacturers or to insurance companies necessarily depended upon the accomplishment of this broad, general purpose of serving the public. Any benefits to manufacturers or insurance companies were purely incidental and not the primary purpose of this corporation. Cf. Northwestern Municipal Association, Inc. v. United States, 99 Fed. (2d) 460; Crooks v. Kansas City Hay Dealers’ Assn., 37 Fed. (2d) 83; Mutual Aid & Benefit Assn. v. Commissioner, 42 Fed. (2d) 619; Young Men's Christian Association Retirement Fund, Inc., 18 B. T. A. 139.
Obviously, the petitioner operated at a profit, but there would be no point to the exemption if the statute did not exempt corporations which operated at a profit. Evidence that a particular corporation made charges for its services which resulted in a large unneeded profit might tend to show that it was organized and operated for profit, but only if the destination of - those profits was some private stockholder or individual. Sand Springs Home, 6 B. T. A. 198. The petitioner ■tried to limit its charges for testing to cost, even to the extent of refunding a part of the amount originally collected. This, to me, indicates a corporation not organized for profit rather than otherwise. It tool? over a large surplus of its predecessor, and about half of that *482surplus was used to give its employees some social security. That use of its profits did not take it without the exempting provisions of the statute. The rest of its surplus for the most part was apparently invested in plant and equipment with some reserve funds.
No cash earnings ever inured or could inure to the benefit of any private stockholder or individual. It is said, however, that the profits inure to the benefit of the insurance companies and manufacturers, since they are used in expanding the plant which performs services for the insurance companies and maufacturers for which they would otherwise have to pay. In the first place, there is no evidence to support this argument and I don’t think we have a right to speculate that the services performed by the petitioner relieved the members or the manufacturers from “making such tests in their own behalf and were of great benefit to them and saved them considerable expense and effort.” The manufacturers were not “private stockholders or individuals” within the meaning of the act. The benefits to insurance companies inured to nonmember insurance companies, the Federal Government, states, municipalities, and the public, as well as to the members. General benefits of that kind are inherent in many cases that arise under this statute and their existence does not defeat the right to exemption. United States v. Proprietors of Social Law Library, supra. Once the broad, public, and charitable purpose of the petitioner is recognized, the incidental benefits pale into relative insignificance.
It seems quite clear to me that the petitioner was not operated for the benefit of manufacturers. Testing was only one of the services performed by the petitioner. It made many studies which were purely for the benefit of the public, were unrelated to the testing of any articles submitted by manufacturers, and were performed free without any possibility of profit to the petitioner. Furthermore, the testing of articles was done, not to serve the convenience of the manufacturers and as a substitute for testing which they themselves would have done, but to safeguard the public. The petitioner established its own tests for its own purposes. It did not test articles as a mere service to manufacturers to determine the general desirability of the articles or to satisfy the desire of the manufacturer for any particular kind of a test. It was in no sense enployed by the manufacturer and was not under the control of the manufacturer. The latter had no choice in the kind of test made or in the use made of the information obtained from the test. The petitioner tested only for certain hazards of its own selection and for the single purpose of safeguarding the public. The charges for testing- were not fixed upon a competitive basis, but upon cost. The labels’ were ’ designed as a part of the" educational system of the petitioner and' not as a m'oney making seheme.- • Commercial labora*483tories might be expected to perform such tests as the manufacturer desired, solely for the purpose of the manufacturer and under some control and direction of the manufacturer. Thus, the petitioner differs materially from any commercial testing laboratory which I can imagine.
I do not think exemption may be denied because of the interest of insurance companies in this petitioner and its activities. It is pretty well insulated from insurance companies by the National Board, which is itself an exempt corporation. No doubt the selfish interests of insurance companies were at least partly responsible for the formation of predecessors of the petitioner, but a broad, charitable purpose is apparent throughout. Exemption should not be denied because insurance companies may reap some incidental benefit from the activities of the petitioner, and it should be borne in mind that those insurance companies which may be represented in some way in the membership of the petitioner receive absolutely no benefits which are not received in equal measure by insurance companies which have no connection whatsoever with the petitioner. This fact distinguishes cases like Northwestern, Mwnicipal Assn., Inc. v. United States, 99 Fed. (2d) 460; Northwestern Jobbers' Credit Bureau v. Commissioner, 37 Fed. (2d) 880; Adjustment Bureau of St. Louis Association of Credit Men, 21 B. T. A. 232; and Durham Merchant's Assn. v. United States, 34 Fed. Supp. 71. All data obtained by the petitioner are just as readily available to nonmember insurance companies, to public officials, and to the public generally as they are to insurance companies which may happen to have representation in the membership of the petitioner. All services, so far as the public was concerned, were rendered free of charge and were available to all alike, whether members or not. The benefit to the insurance companies is said to be through a reduction of hazards and a consequently lower rate for insurance, which must result in increased business. Is it reasonable to believe that this indirect, remote, and doubtful benefit was the purpose for which the petitioner was organized and operated?
Furthermore, I think the petitioner would be exempt as a business league under section 101 (7) even if it were not exempt under 101 (6). Some of the requirements for exemption under (7) are the same as those for exemption under (6) and need no further discussion here. The majority opinion concedes that the petitioner meets a number of the requirements of a business league and those requirements need no discussion. But it is said that the petitioner is not a business league because it engaged in a regular business of a kind ordinarily carried on for profit. The petitioner has offered some proof to show that it was not engaged in that kind of business and to show that its *484nearest counterpart is found in the Bureau of Standards and in the Bureau of Mines, rather than in any commercial laboratory. The respondent says that the petitioner is like many commercial laboratories, but he has failed to offer any proof to show what commercial laboratories do or wherein they are like the petitioner. Furthermore, I have pointed out above a number of particulars in which the activities of this petitioner are shown to be different from those of a commercial nature which are competitive and engaged in for profit. The petitioner was not a competitor and was not offering services designed to meet the desires of manufacturers. Exemption is not to be denied the petitioner because it found a way to become self-supporting and carry on its great public work at the expense of manufacturers who derived an incidental benefit from its activities. There is no evidence that the public paid for the services of the petitioner through higher prices charged for approved and labeled goods. The public derived the chief benefit at no cost whatsoever. It seems to me that the petitioner meets the statutory requirements of a business league and should be exempt from tax, either on that ground or under 101 (6), or under both.
Smith and Leech agree with this dissent.