Century Country Club v. United States

Jones, Ohief Judge, delivered the opinion of the court: The plaintiff, Century Country Club, on behalf of its members seeks a refund of taxes paid during the years 1947, 1949 and 1950 on assessments which the club had made against its members, and which the members had paid. The facts have been stipulated. The club had four classes of members — regular, special, non-resident and honorary. The stated objects in the original certificate of incorporation were to promote social intercourse among its members, to encourage and stimulate .an interest in outdoor sports, and to provide its members with the conveniences of a Club House and of lands where such outdoor sports may be indulged in, and generally to do and perform any and all acts in any wise appertaining to the specific objects hereinbefore set forth. Article V of the by-laws which were in force during the period involved, stipulated among other things, that the entire direction, management and control of the club “shall be vested in its Board of Governors”, and that “from time to time whenever in their judgment the financial condition of the Club shall require the same” the Board is empowered “to levy assessments” on the members of the club. Under this authority the Board of Governors levied assessments in 1947, 1949 and 1950 on all members of the club. These were in addition to the regular dues, which were substantial. These assessments, including taxes, were paid and the taxes remitted to the Collector of Internal Revenue, 14th District, New York. For the years involved plaintiff reported and remitted taxes on assessments in the sum of $8,731 and included $7,968.50 on club dues, a total of $16,699.50. Suit was regularly filed for a refund of $16,023.50 on the ground that these assessments were not taxable under section — 161 — 1710 of the Internal Eevenne Code. Plaintiff claims that under the statutes of New York a membership corporation has only those powers conferred by its charter or certificate of incorporation, and that since the certificate of plaintiff did not confer the power to levy such assessments they were not legally enforceable and therefore not taxable. The plaintiff cites three cases1 in which the assessments were held invalid. In each of those cases, however, the club’s by-laws did not authorize the Board of Governors to levy assessments. In each of those cases the members were solicited to sigh an agreement for an assessment or to make a contribution. Not all of the members were willing to sign an agreement, or to make contributions, and no effort was made to collect from the delinquents. In the case at bar there was no solicitation, but a fixed assessment which all the members paid. Plaintiff concedes this distinction but claims that since the certificate of incorporation did not authorize the levy of assessments, the Board of Governors had no such power, the by-laws to the contrary notwithstanding, that as a consequence the distinction disappears, and that thus the levy was not legally enforceable, and therefore not taxable. We do not regard this position as tenable. If this position were correct neither dues nor assessments would have been enforceable; and since the certificate does not specifically authorize either, there would have been no way to finance the operation of the club or to accomplish its objects. The certificate of incorporation authorized the club, inter alia, to “stimulate an interest in outdoor sports * * * to provide its members with the conveniences of a Club House and of lands where such outdoor sports may be indulged in, and generally to do and perform any and all acts in any wise appertaining to the specific objects hereinbefore set forth.” It seems to us that implicit in this language is authority to do whatever was reasonably necessary to carry out the stated objectives. Otherwise the club could not function and from — 162 — a practical viewpoint none of its objectives could be accomplished. Section 1712 of the Internal Revenue Code (as amended by section 543 (b) of the Revenue Act of 1941) is as follows: The term “dues” includes any assessment, irrespective of the purpose for which made, and any charges for social privileges or facilities, or for golf, tennis, polo, swimming, or other athletic or sporting privileges or facilities, for any period of more than six days; * * * In determining whether the payments to a club for certain privileges were taxable the Supreme Court in the case of White v. Winchester Club, 315 U. S. 32, 41, in holding the privilege payments as assessed subject to tax, uses the following language: Consideration of the nature of club activity is a necessary preliminary to the formulation of a test of what constitutes a “due or membership fee.” So far as finances go, the fundamental notion of club activity is that operating expenses are shared without insistence upon equivalence between the proportion of an individual’s contributions and the proportion of the benefits he receives. Thus, on the one hand, payment of the price of an individual dinner at the club dining room or of a single round of golf lacks the element of making common cause inherent in the idea of club activity. But, on the other hand, payment for the right to repeated and general use of a common club facility for an appreciable period of time has that element and amounts to a “due or membership fee” if the payment is not fixed by each occasion of actual use. Such was the case here, and we therefore hold that the payments in question were subject to the tax. On the question of the power of Congress to set the pattern of taxation the Supreme Court in Lyeth v. Hoey, 305 U. S. 188, 194 said: In dealing with the meaning and application of an act of Congress enacted in the exercise of its plenary power under the Constitution to tax income and to grant exemptions from that tax, it is the will of Congress which controls, and the expression of its will, in the absence of language evidencing a different purpose, should be interpreted “so as to give a uniform application to a nationwide scheme of taxation.” Burnet v. Harmel, 287 U. S. 103, 110. Congress establishes its own criteria and the — 163 — by express language or necessary implication makes its operation dependent upon state law. state law may control only when the federal taxing act In the case at bar the assessments were levied and collected for the general purposes and operations of the club. The by-laws fully authorized the levy of the assessment by the Board of Governors, who had the further power to suspend or expel a member for a violation of the by-laws. The bylaws were in keeping with the broad general language and declared purposes of the certificate of incorporation. It was the clear intention of Congress as expressed in the legislative enactment that a tax should be levied and collected on transactions of this kind. In this instance the individual members did not contest the collection of the assessment. They paid the assessment and the club apparently received and retained the funds. The petition is dismissed. It is so ordered. MaddeN, Judge; and Littleton, Judge, concur. Whitaker, Judge, took no part in the consideration and decision of this case. FINDINGS OF FACT The court makes findings of fact based upon the stipulation of the parties, the briefs and argument of counsel, as follows: 1. The Century Country Club was organized as a membership corporation pursuant to the laws of the State of New York on the fourth day of May 1898, for the purpose of promoting, encouraging and stimulating an interest in outdoor sports and to provide its members with the convenience of a clubhouse and of lands where the members may participate in such outdoor sports. The club is located at White Plains, County of Westchester, State of New York. A copy of the Certificate of Incorporation of the Century Country Club is attached hereto, marked Exhibit “A”. 2. Plaintiff is of that class of organization to which Section 1710 of the Internal Revenue Code is applicable. 3. By an amendment to Section 1 of Article III of its by-laws approved October 28, 1946, the initiation fee was — 164 — increased from $300 to $500 for any person thereafter accepted as a Eegular Member of plaintiff. A further amendment to Section 1 of Article III was adopted September 14, 1951, whereby the initiation fee was increased to $1,000 for any person thereafter accepted as a Eegular Member of plaintiff. During the years 1947 through 1950, plaintiff’s initiation fee was $200 for every person accepted as a Special Member. Section 2, Article III, of plaintiff’s by-laws provided that the Eegular Members should pay annual dues of $350. By an amendment approved October 27, 1947, the annual dues of Eegular Members was increased to $420, beginning January 1,1948. Under Section 2 (B) of Article III, the annual dues of Special Members for the year 1947 were $150 under twenty-five years of age, $200 between the ages of twenty-five and twenty-nine, and $250 between the ages of thirty and thirty-four. By the aforesaid amendment approved October 27,1947, the annual dues of Special Members were increased beginning January 1, 1948, to $180 for those under twenty-five years of age, $240 between the ages of twenty-five and twenty-nine, and $300 between the ages of thirty and thirty-four. During the years 1947 through 1950, plaintiff’s Article V, Section 1, provided: “Section 1. Management. The entire direction, management and control of the affairs, property and funds of the Club shall be vested in its Board of Governors, who shall pursue such policies and principles as shall be in accordance with the Certificate of Incorporation of the Club, these Bylaws, and the laws of the State of New Yorh and of the Federal Government.” These By-laws further provided, under Article Y, Section 15 (d), that the Board of Governors, prior to October 27, 1947, were empowered— “(d) from time to time, whenever in their judgment the financial condition of the Club shall require the same, to levy assessments on Eegular Members of the Club, or such classes thereof as they shall determine, payable at such time or times as may be by them prescribed but the total assessments payable in any one year shall not exceed $100 per Eegular Member unless authorized at a meeting of the Members of the Club by a majority vote of those present — 165 — By an amendment adopted October 27,1947, the foregoing subsection of its By-laws was changed to read— “(d) from time to time, whenever in their judgment the financial condition of the Club shall require the same, to levy assessments against all Members of the Club, payable at such time or times as may be prescribed by them, but the total assessments payable in any one year, unless otherwise approved at a meeting of the Members of the Club by a majority of those present, shall not exceed $100 for each Regular Member and such proportionate part of $100 for each Special Member and each NonResident Member as the dues payable by such Special Member and Non-Resident Member bears to the dues then payable by Regular Members, and nothing herein contained shall limit the power of the Members at a meeting duly called to levy an assessment or assessments in excess of the foregoing amounts against any or all classes of Members During the years 1947 through 1950, Article V, Section 15 (e) of plaintiff’s By-laws provided as follows: “(e) to censure, suspend, drop or expel any Member for a violation of these Bylaws or any rule which has been approved by the Board of Governors; but no Member shall be censured, suspended, dropped or expelled unless by an affirmative vote of two-thirds of all the Governors, nor without written notice of the charges against him and of the time when he may appear before the Board of Governors in person or may submit to the Board of Governors a written reply to such charges The by-laws of the corporation provided for four classes of members — regular, special, non-resident and honorary, with the age limits and number of regular and special members. It was also provided that: Any Member who shall fail to pay any installment of dues for 30 days after the same shall be payable, or any Member who shall fail to pay any amount due and owing by him to the Club within 30 days after the end of the month during which the indebtedness was incurred, may be dropped from membership on the affirmative vote of two-thirds of the whole Board of Governors; * * * Any Member may be expelled, suspended or have his privileges in the Club limited for cause, including any conduct which, in the judgment of the Board of Gov — 166 — ernors, is improper, prejudicial or detrimental to the Club. * * * A copy of plaintiff’s By-laws, as amended and in effect during the years 1947 through the year 1950, is attached to the original stipulation filed herein as Exhibit “B.” 4. Under dates of October 1, 1947, December 1, 1949, November 1, 1950 and December 1, 1950, pursuant to the authority conferred by its By-laws plaintiff levied an assessment of $100 each upon all Regular Members of the Club. On November 1, 1950, plaintiff also levied an assessment in varying amounts on other classes of its membership. Plaintiff collected all of these assessments, together with the 20% tax thereon as provided by Section 1710 of the Internal Revenue Code, and remitted the tax thus collected to the Collector of Internal Revenue, 14th District, Albany, New York. Pursuant to Sections 1700 and 1710, plaintiff filed monthly returns (Form 729), Tax on Admissions, Dues, and Cabarets, Roof Gardens, etc., for the months of October 1947 through May 1951, reporting the collection and remittance thereof of taxes collected on admissions, roof gardens, cabarets, and similar entertainments, club dues, club initiation fees and assessments totaling $109,290.22. On these returns, plaintiff reported collection and remittance of taxes on assessments of $8,731 and included $7,968.50 in the taxes reported collected on Club dues, making a total paid on the assessments of $16,699.50. 5. On June 8, 1951, plaintiff filed a claim for refund in the amount of $16,023.50 grounded upon the contention that taxes collected from the club members and remitted to the Collector on the assessments levied under dates of October 1, 1947, December 1, 1949, November 1, 1950 and December 1, 1950 were not due and payable under the provisions of Section 1710 of the Internal Revenue Code. Attached to the claim for refund was a list of members, together with the amount of refund claimed by each who had signed power of attorney authorizing plaintiff to prosecute a claim for refund in their behalf, which totaled $16,023.50 of the taxes paid on the assessments. Four of the powers of attorney were for estates of deceased members each executed by a duly appointed executor of the estate. — 167 — CONCLUSION OP LAW Upon the foregoing findings of fact, which are made a part of the judgment herein, the court concludes that as a matter of law the plaintiff is not entitled to recover, and the petition is therefore dismissed. Footnotes [1] Garden City Golf Club v. Corwin, 62 F. 2d 246 (Circuit Court of Appeals (2d) 1932) ; Fresh Meadow Country Club v. United States, 17 F. Supp. 400 (District Court, Eastern District New York (1936)); Pendennis v. United States, 20 F. Supp. 758 (District Court, Western District, Kentucky (1937)).