Court Opinion

ID: 4474460
Source: CourtListenerOpinion
Date Created: 2020-01-16 21:10:56.645373+00
Date Added: 2024-06-11T14:50:57.136450
License: Public Domain

Harlan, J., dissenting: I am unable to support the majority opinion herein for the reason that it is based on the premise that the petitioner is deriving income from selling services in competition with others, whereas the findings of fact, and especially the tabulation of receipts and expenditures, show that the major activities of petitioner are confined to acting purely as a purchasing agent for its members. Also, the findings of fact fail to show that any part of the net earnings of the petitioner “inures to the benefit of any private shareholder.” Petitioner was not operating an insurance company; neither was it receiving any commissions for the policies which it purchased and delivered to its members. The commissions paid to increase its membership were also for the benefit of its existing members, as the increase in membership furnished a greater base for the division of expenses. The money which it paid to the American Automobile Association purchased for its members the right to apply to other automobile clubs throughout the United States for travel information, maps, and other services. The money paid out for road service purchased for its members the right to be towed to a garage in the event of automobile failure. Not one of the above services was sold by the petitioner, nor did it receive any profit or income from the transaction. The rest of the activities of the petitioner were gratuitous services rendered to the public at large, as well as to its own members. I am unable to find any basis in the findings of fact for the statement in the majority opinion: “The petitioner was definitely engaged in business of a kind generally carried on for profit.”' The mere receipt by a corporation of income does not imply that such income is taxable. Eisner v. Macomber, 252 U. S. 189. In a recent case decided by this Court, National Leather & Shoe Finders Association, 9 T. C. 121, involving section 101 (7) of the Internal Revenue Code, exempting business leagues from taxation, which is worded similarly to section 101 (9) pertaining to clubs, this Court exempted the taxpayer therein and in the findings of fact commented as follows: Petitioner made no special cnarges above dues to its members for these various services which it rendered. The services were available to all its members alike and were incidental to and in furtherance of its main purpose to promote the welfare of the industry as a whole. The majority opinion herein fails to show the manner in which petitioner’s “net earnings” (if any) inured to the benefit of any of petitioner’s members. Certainly the amount of the dues which petitioner expended in making purchases on behalf of its members did not inure to the benefit of the members except in the sense that all purchases at reduced prices usually benefit the purchaser. To tax such benefit, either to the agent making the purchase or to the individual himself, is tantamount to imposing a sales tax on the purchases so made. The very use of the word “club” in the statute and the use of the word “club” in the title of petitioner is a strong indication as to the intent of the statutor exemption and the purpose of petitioner’s organization. Petitioner is not a social club in the sense that it holds social gatherings. Therefore the word “club” must have a different connotation. Murray’s Oxford English Dictionary furnishes a definition of such a club as follows: “An association formed to combine the operations of persons interested in the promotion or prosecution of some object.” The New International Encyclopedia describes such a club as: “An association the expenses of which are shared among its members.” The University of Chicago Dictionary of American English defines the verb “to club together” as “to combine resources.” Petitioner is primarily an agent for such a group who have combined their resources to obtain services at less cost than when acting individually. I have found nothing in the revenue code imposing a tax on such savings, nor are any precedents available to support the majority conclusion that they are “profits” to the purchasing agent. In fact, the regulations of the Commissioner from the very beginning of income taxation in 1913 up to Regulations 77, article 530, in 1932, read substantially as follows: “The exemption granted * * * applies to practically all social and recreation clubs which are supported by membership fees, dues and assessments.” Recently, however, General Counsel Memorandum 23688, 1943 C. B. 283, was promulgated, and therein the General Counsel ruled differently concerning an automobile “association.” The proceeding at bar is an attempt to support this memorandum on the apparent assumption that it applies to local automobile “clubs.” While the activities of local automobile clubs have changed somewhat in detail with the growth in automobile traffic, the purposes of those activities have remained constant. The revenue code has also remained unchanged on the subject of social clubs. One might suspect, therefore, that the inducement for the Commissioner’s 1943 reversal in tax policy on the question of automobile clubs rested in the greatly increased volume of automobile club dues. An attempt to procure tax revenue from this source is doubtless commendable, but the question involved would seem to be a matter of governmental policy, to be handled by Congress rather than one to be accomplished by the judicial imposition of a camouflaged sales tax. Upper, /., agrees with this dissent.