Court Opinion

ID: 6756573
Source: CourtListenerOpinion
Date Created: 2022-07-21 00:27:36.752531+00
Date Added: 2024-06-11T16:02:27.540208
License: Public Domain

Holmes, J.,
dissenting. I must respectfully dissent. The tax laws of this state, including the corporate franchise tax *242of R. C. Chapter 5733 charged against each corporation organized for profit, must be.reasonably applied in the manner for -which they were enacted.
This court has, in construing R. C. 5733.01(A), previously held that the determination as to whether a corporation was one for profit, or not for profit was not dependent upon the phraseology of the particular form filed by the incorporators with the Secretary of State. This court has held the true test to be the actual character of the corporation (State, ex rel. Russell, v. Sweeney [1950], 153 Ohio St. 66), and that it is also proper to consider the history of such corporation (American Jersey Cattle Club v. Glander [1950], 152 Ohio St. 506).
The articles of incorporation of the Shaker Heights Country Club as originally filed in essence set forth the purposes of such corporation to be exclusively operated as a private country club for the social and recreational pleasure of its members and their guests. The record shows that this corporation from its inception has so operated as a private country club, and has operated in fact on a nonprofit basis, even though the incorporators had filed a corporation for profit form with the Secretary of State.
In American Jersey Cattle Club and State, ex rel. Russell, supra, this court held that even though the articles of incorporation of those corporations stated them to bo not for profit, a review of the operations of such corporations showed that in fact they were operating at a profit, and their purpose clauses gave them wide latitude so to operate. In American Jersey, a case involving the assessment of personal property tax, the court found that the corporation’s annual revenues substantially exceeded its yearly expenditures. The actual surplus of the entity in 1947 was over $600,000. In State, ex rel. Russell, the court pointed out that the purpose clause of that corporate entity gave it a wide breadth of authority to deal extensively in the buying, selling, leasing, developing or operating of real estate. "
A case interpreting the applicability of personal prop*243erty tax laws to a corporation which had filed its charter “for profit” is Kirtland Country Club v. Bowers (1962), 174 Ohio St. 116, where this court stated, at pages 117-118, that “it is possible that a corporation organized as a corporation for profit may not in fact be conducted for profit. * * * Therefore, the fact that the club in the present case was organized as a corporation for profit is not conclusive as to whether it is ‘conducted for gain, profit, or income.’ ”
In Woodland Gardens Apartments v. Porterfield (1968), 16 Ohio St. 2d 56, á franchise tax case, this court reviewed the operating history of an entity which acquired, owned, constructed, leased and operated an apartment building and other buildings and which had filed as a corporation for profit. This court applied the test of American Jersey and Russell, supra, i. e., the history and actual character of the corporation. The court found that the shareholders, who were also the lessees of the apartment units, enjoyed a sharing in the surplus accumulated through the various real estate operations. The sharing in that instance was lesser charges fixed for the shareholders for the use of the apartment units. This court concluded that under the facts of that ease, the “element of gain or profit is discernible.”
All the eases above clearly establish that the history and actual character of the corporation are viewed by the court in determining whether the entity is in fact one “for profit” or “not for profit.”
Here, relating to the Shaker Heights Country Club, the record shows that the purpose clause in effect does not authorize extensive business or commercial activity — only the activities of a private country club, and only for its members and guests.
The record shows that the Shaker Heights Country Club operates at a loss, which loss is made up by dues, fees, and assessments of its members.
The assessments in certain years have been greater than the mt operating loss, and over the years this “sur*244.plus” amount has been used for building repairs and capital, improvements. There never was a cash surplus which was considered.to be distributable to the stockholders. Further, the record shows that from the inception of this country club, there has never been a dividend paid to the shareholders, nor any financial benefits bestowed upon the shareholders.
Applying the rationale of American Jersey, Russell, Woodland and Kirtland, supra, herein, the instant corporation, whose conduct and authority is limited to operating a private country club solely for the benefit of its members and guests, and whose facilities constantly operate at a loss, which is balanced only by the dues, fees, and assessments of the members, is a “non-profit” corporation which would be exempt from the payment of Ohio franchise taxes.
For the foregoing reasons, the decision of the Board of Tax Appeals is unreasonable, unlawful, and against the manifest weight of the evidence, and should be reversed.
Lochee, J., concurs in the foregoing dissenting opinion.