Court Opinion

ID: 4590152
Source: CourtListenerOpinion
Date Created: 2020-11-20 19:03:04.522619+00
Date Added: 2024-06-11T07:50:25.215960
License: Public Domain

APARTMENT OPERATORS ASSOCIATION, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.Apartment Operators Asso. v. CommissionerDocket No. 106666.United States Board of Tax Appeals46 B.T.A. 229; 1942 BTA LEXIS 891; January 29, 1942, Promulgated 1942 BTA LEXIS 891">*891  Exemption as a business league is denied a nonprofit corporation which buys supplies for its members and sells them to the members at a price which includes a service charge or fee which is placed in a fund which under its bylaws may be distributed among the members.  Edward E. Merges, Esq., for the petitioner.  T. M. Mather, Esq., for the respondent.  STERNHAGEN 46 B.T.A. 229">*229  The Commissioner, holding that the petitioner was not exempt from tax, determined deficiencies for 1938 of $107.49 income tax and $103.19 excess profit tax.  FINDINGS OF FACT.  The petitioner is a corporation, with principal office at Seattle, Washington.  It filed its return in Tacoma.  It was organized November 3, 1937, under the laws of the State of Washington relating to nonprofit corporations.  It is limited to memberships and has no capital stock.  It pays no dividends.  The objects and purposes for which it was formed are stated in its articles of incorporation as follows: (a) To provide a mutual benefit organization not operated for profit, for the purpose of gathering and distributing facts, data, and information relative to the ownership, operation, and general1942 BTA LEXIS 891">*892  conduct of apartment houses and the apartment house business in general, for the use and benefits of its members and for public dissemination.  (b) To provide a meeting place, office and other facilities which are deemed necessary or desirable in the handling of its affairs and for use and benefit of its members.  (c) To handle goods, wares and merchandise required by its members, and to render service and counsel, and assistance to its members, and generally to assist them in control of their financial and economic interests and stabilization of the industry.  46 B.T.A. 229">*230  (d) To own, operate, publish, manage and distribute any publication deemed advisable, and particularly the magazine known as the "APARTMENT JOURNAL" in accordance with the law governing such publications, and in connection therewith to employ agents to conduct and handle the same sell advertising space therein and to do all things deemed necessary or expedient in connection therewith.  (e) To encourage and assist in the organization of apartment house owners and operators in the State of Washington.  Its powers are stated in its articles as follows: (a) To make, use and alter a corporate seal at its pleasure1942 BTA LEXIS 891">*893  in such forms as prescribed by the By-laws, (b) To sue and be sued in any court of law, (c) To purchase, own, hold, convoy [sic] and otherwise use and enjoy real and personal property of all kinds, and in connection therewith to acquire, construct and maintain, and operate buildings and equipment deemed necessary or convenient in connection therewith, (d) To appoint subordinate agents, and officers and employ labor in connection with its affairs and to fix their compensation.  (e) To charge and collect fees, dues, assessments, service and other charges of its members and to sell or forfeit the interests of any member for default in payment of the same, (f) To make contracts, borrow money, issue notes, bills, and any other evidence of indebtedness and to mortgage or otherwise encumber its property to secure the payment of same, (g) To establish branches in any one or more cities of the State of Washington under such conditions as may be prescribed by its By-laws, (h) To do any and all things deemed necessary or convenient to carry out its purposes as permitted by Chapter 134 Law of 1907 and the general law not in conflict therewith.  (i) To enact and enforce By-laws1942 BTA LEXIS 891">*894  for the governing of this corporation and its branches and to alter and amend same; and also to alter, amend, enlarge or diminish the purposes of this corporation, (j) To establish, accumulate, and operate a surplus fund from any of its operations, including: Members' fees, charges and dues; and services rendered members and supplies purchased and handled for its members; and to distribute such fund to members in accordance with the provisions of its By-laws.  Its bylaws during the year 1938 contained the following: ARTICLE II.  Section 1.  The aim and objects of this corporation shall be: To promote interests of its members; their mutual protection; to promote efficiency in the conduct of their business; to eliminate unwise and unfair business practices; to protect its members against unfair or unjust taxes and legislative enactments; to endeavor to procure sound and just legal protection to the apartment industry; to advise and assist the members in the conduct in their own business; to promote standards and ethical business practices; and to assist in the formation of similar associations in other cities of the State of Washington; in order that the apartment business be1942 BTA LEXIS 891">*895  permanently established on a sound and economic basis.  To that end, the objects and powers stated in the Articles of Incorporation are hereby confirmed and adopted as a part of these By-laws.  * * * ARTICLE 46 B.T.A. 229">*231  XII.  * * * Section 5.  COMMITTEES: When so directed by the Board, Standing Committees shall be appointed by the President to serve for the same length of time as the regularly elected officers and shall be as follows: (a) Legislative Committee: This committee shall consist of three (3) members, whose duty it shall be to keep in touch with the legislative bodies of the City, County and State in order that the best interests of the members and the apartment industry be properly protected.  All matters pertaining to legislative functions, coming before meetings of the Association, shall be referred to this Committee before action is taken, and the Committee shall report to the Board of Trustees the results of its deliberations, and such reports shall be acted upon immediately.  * * * (e) Rental Committee: This Committee shall consist of three (3) members whose duty it shall be to keep in touch with the rental situation so that the members may be1942 BTA LEXIS 891">*896  kept advised of the true condition as to vacancies, rentals, the trend of supply and demand and all such information as may be of value to the Association in rendering accurate service to its members.  * * * (h) Supplies and Services Committee: This committee shall consist of three (3) members, either within or without the Board of Trustees, to supervise supplies furnished or services rendered to members, and to fix the price thereof, subject to the approval of the Board.  * * * ARTICLE XIII.  OFFICIAL PUBLICATION.  Section 1.  The official publication of this Association is and shall be "APARTMENT JOURNAL" which is hereby accepted, taken, and declared to be owned, operated and published by this Association and distributed to the members in good standing from time to time and no member can obtain any equity, interest or right therein extending beyond his membership as provided in these By-laws.  Section 2.  This publication shall be controlled and managed by the Board of Trustees of this Association under the direct management of the Executive Secretary, title Managing Editor, assisted by such associate editors as may be from time to time appointed by the President and1942 BTA LEXIS 891">*897  approved by the Board of Trustees.  Section 3.  The Managing Editor with the approval of the President is authorized to employ all additional labor and incur all additional expense incident to publications, mailing and delivery to each member monthly a copy of such publications, all subject to the approval of the Board of Trustees.  * * * ARTICLE XV.  SUPPLIES AND SERVICES.  Section 1.  The Board of Trustees shall have power to authorize the purchase and to otherwise acquire any and all kinds of supplies, goods, wares, and merchandise used or useful by its members in connection with their business, consolidating such purchases in their discretion in quantity purchases, in harmony with members' requirements, or orders and withdrawals therefrom, for the purpose 46 B.T.A. 229">*232  of obtaining wholesale prices and reductions; and to dispose of, handle, transport, store, warehouse, sell and deliver same to the members of this Association as required by them; and to fix the price thereof and charge and collect of such member such cost of same plus a service charge or fee for so handling the same; and to set aside any profits derived therefrom in a surplus fund to be established by resolution1942 BTA LEXIS 891">*898  of the Board of Trustees.  Section 2.  The Association will employ and furnish to its members the services of individuals for apartment shopping, and any other service for which there is deemed a general or pressing demand, at the actual cost of such service plus a service charge therefor to be fixed by resolution of the Board of Trustees.  All monies received shall be deposited to the credit of the Association in such bank or other depositary designated by the Board.  * * * ARTICLE XVI.  SURPLUS FUND.  Section 1.  The Board of Trustees shall by resolution establish a surplus fund in a bank or other depositary of its selection and may change such depositary at its discretion.  Into this fund shall be paid and deposited all monies and monetary profits received from fees, dues, service charges, journal advertising and from any other source or sources which are not deemed necessary to retain in the commercial banking account of the Association to meet the operating expenses thereof and for working capital.  Such surplus fund shall be jointly owned by all of the members of the Association as such in good standing, but such funds shall be subject to the exclusive control, use, 1942 BTA LEXIS 891">*899  disposal and disbursement by the Board of Trustees.  Section 2.  In its discretion, the Board of Trustees may use this fund or any part thereof to acquire and establish an office, meeting place, and other facilities for the handling of the business of the Association, and otherwise for the use and benefits of its members, and may distribute such fund, or any part thereof, pro-rata to the members of the Association in good standing, contributing to the source of such fund through the purchase of supplies handled or contracted for by the Association.  ARTICLE XVII.  LABOR RELATIONS.  Section 1.  LABOR RELATIONS COMMITTEE: For the purpose of dealing with labor unions and settling labor disputes between the members and their employees, there is hereby created a Labor Relations Committee to be composed of three (3) members elected by the Board of Trustees.  Such committee shall meet with the Committee of labor unions for the purpose of arriving at agreements covering uniform practices and standards of hours and wages applicable to the different types of buildings and employment in the apartment industry.  Such committee shall also hear all disputes and complaints arising at any1942 BTA LEXIS 891">*900  time or from time to time between and member and employee.  Any and all negotiations and agreement by such committee with any labor union shall be referred to the Board of Trustees and approved by a majority of the members at any meeting, before the same shall become binding on this Association and its members.  Section 2.  LABOR REPRESENTATIVE: The Executive Secretary of this Association shall be and is hereby made the Labor Representative of this Association for its members and shall have and exercise all of the functions as such, subject to control by the Labor Relations Committee and the approval of the Board of Trustees.  46 B.T.A. 229">*233  Petitioner exercised substantially all the foregoing functions.  It acted as a clearing house for information about tenants, about the operation of apartment houses, and about legislation affecting the business; it gave counsel and advice, and did what it could to promote the common welfare of the members.  On its own machine, it printed specially designed forms, such as rent receipts and rental agreements, for use in its locality and sold them to members at cost, plus a small margin, the price being less than a member would ordinarily pat if1942 BTA LEXIS 891">*901  he were independently to have the forms printed.  It gets information about prices and buys articles, such as electric light bulbs and other electrical equipment, for its members in larger quantities and at lower unit prices than they would ordinarily pay, and sells them to the members at prices slightly above cost.  In 1938 it bought at a 36 percent discount and sold to its members at 32 percent discount.  The price does not include any portion of overhead expenses, such expenses, as for rent, furniture, equipment, and salaries, being paid entirely out of dues.  In 1938 it published a journal and distributed it among its members.  By this means it disseminated information more inexpensively than by letter or pamphlet.  The journal carried advertising of supply houses, light and power, and telephone companies; it did not pay for itself, and was discontinued in 1939.  It represents members in labor disputes, and negotiations and hearings are held in its rooms.  Petitioner has no purpose or intention of making a profit, but it tries to have a small surplus to assure its continuance.  It maintains a general fund comprising all its receipts, including dues and sales and advertising receipts, 1942 BTA LEXIS 891">*902  and from it payment is made of all expenses, such as salaries and equipment.  In 1938 the fund grew and then remained stationary.  As shown by its 1938 return, petitioner's gross receipts were $10,814.17, comprised of dues $6,943, journal $2,519.09, and merchandise sales $1,352.08; and its expenses were $9,873.08, comprised of general expense $3,641.96, journal $4.604.96, and merchandise purchases and expenses $1,626.16.  OPINION.  STERNHAGEN: The petitioner claims exemption under Revenue Act of 1938, section 101(7), as a business league not organized for profit and no part of the net earnings of which inures to the benefit of any private shareholder or individual.  The claim, we think, was properly denied by the Commissioner.  The petitioner's purchase of supplies at a discount and its resale to the members at less than they would otherwise pay is a business operation and its advantage is the sort of profit inuring to the benefit of the members which is preclusive of the statutory exemption.  The fact that the corporation was organized under 46 B.T.A. 229">*234  the state laws relating to nonprofit corporations and the officers had no intention to conduct its operations at a profit is1942 BTA LEXIS 891">*903  less important than its actual operations.  Under article XV of the bylaws supplies may be sold to members at a price which includes a service charge or handling fee, the profits from which may be set aside in a surplus fund; and by article XVI the surplus fund may be distributed among the members.  Petitioner was a cooperative buying organization, withholding a margin, however small.  Such cooperatives are not among the exempt organizations of the statute, as are farmers' cooperatives, which buy supplies and turn them over to members at actual cost plus necessary expenses.  Sec. 101(12).  The determination is sustained.  ; ; ; ; ; 1942 BTA LEXIS 891">*904 ; . Decision will be entered for the respondent.