The opinion of the court was delivered by: BICKS
Plaintiff sues to recover the dues taxes collected from, and paid by it on behalf of, its members for the period March 1943 to August 1946.
The decision of this case turns upon the answer to the question: Was the Rockefeller Center Luncheon Club, Inc., a social club or organization within the meaning of Section 1710 of the Internal Revenue Code, 26 U.S.C.A. § 1710, during the period in respect of which the dues taxes were paid?
Section 1710 of the Internal Revenue Code imposes 'a tax equivalent to 11 per centum of any amount paid as dues or membership fees to any social * * * club or organization, if the dues or fees of an active resident annual member are in excess of $ 10 per year.'
The statute does not define what a social club is. There are, however, two relevant Regulations of the Treasury Department which treat with the subject.
26 C.F.R. 101.24 and 101.25,
so far as material provide:
101.24 'Determination of character of club. -- The purposes and activities of a club or organization and not its name determine its character for the purpose of the tax. Every club or organization having social, * * * features is presumed to be included within the meaning of the phrase, 'any social, * * * club or organization,' until the contrary has been proved, and the burden of proof is upon it.'
101.25 'Social clubs. -- Any organization which maintains quarters, or arranges periodical dinners or meetings, for the purpose of affording its members an opportunity of congregating for social intercourse, is a 'social * * * club or organization' within the meaning of the Code, unless its social features are not a material purpose of the organization but are subordinate and merely incidental to the active furtherance of a different and predominant purpose, such as, for example, religion, the arts, or business. The tax does not attach to dues or fees of a religious organization, chamber of commerce, commercial club, trade organization, or the like, merely because it has incidental social features, but, if the social features are a material purpose of the organization, it is a 'social * * * club or organization' within the meaning of the Code. * * *'
In passing upon whether plaintiff is a social club the Commissioner of Internal Revenue has demonstrated a fickleness which bespeaks his uncertainty. When the Club was first organized he ruled that it was not a social club. Eight years later he reversed this ruling and instructed the Club in the future to collect the dues tax from its members. Some three and a half years thereafter he suffered a change of mind and ruled once more that the Club was not a social club. This ruling remained in effect for approximately two years when he again reversed himself and ruled that the Club was a social club subject to the dues tax.
Admittedly the operations of the Club, the character of its organization and the purpose for which it was created and, insofar as material for present purposes, the statute and the regulations, underwent no substantial change throughout the entire period. The several changes in the Commissioner's rulings coincided with the rendition of diverse court decisions applying the statute in other cases. It is in the failure to discriminate between varying fact situations and the omission to recognize that for the purpose of determining its character, almost every club is sui generis,
that the Commissioner has fallen into error.
The Club was organized on July 9, 1934, under the Membership Corporations Law of New York, McK.Consol. Laws, c. 35. The charter recites that the purpose for which the Club is formed is 'to provide and maintain meeting and lunch rooms, and other facilities for the use and convenience of its members, and to conduct and operate a social club * * *.' It is the creature of Rockefeller Center, Inc.,
the owner of a commercial real estate development which, within the area of a few city blocks, accommodates upwards of 30,000 people during the business day. When the Club was organized the only restaurant which afforded comparable facilities was a small restaurant on the ground floor of one of the buildings in the development. Mindful of the deterring influence inadequate restaurant facilities might have upon prospective tenants and with a view to mitigating it, the Owner decided that certain space which was used as a night club, be utilized during specified hours of the day as a restaurant. Owing to the limited seating capacity of that space in relation to the total tenantry, the Owner concluded that some control of access thereto was necessary and that such control could be exercised with least embarrassment to it through the medium of a club. It thereupon proceeded to cause the Rockefeller Center Luncheon Club, Inc. to be organized. The motivation was profit to the Owner, not from the operation of the Club as such, but principally as an added feature to attract tenants to the development.
The Club has only one class of membership -- regular resident members. Only adult males are eligible to join. Candidates for membership must be proposed and seconded by two members of the Club and no application is acted upon unless the candidate meets at least two members of the Board of Governors. The only two Governors who testified, stated that they never had voted against an applicant for membership. The members number approximately 1100 and are drawn from various industries and professions. The denominator common to the preponderant number of them is wholly fortuitous -- their offices are or were at the time of joining the Club, located in the development.
It is not uncommon for tenants to provide membership in the Club and pay the dues for a large number of their partners or executive personnel.
When a member who is an executive officer of a corporate tenant dies or retires or leaves the office of the corporate tenant in the development it is the practice to admit to membership without delay a successor designated by the corporate tenant. Sixteen executives and employees of the Owner whose duties relate to tenant relations and to the renting of space in the development are members of the Club and their dues are paid by the Owner.
The Board of Governors consists of nine persons who are tenants or executives of corporate tenants in the development, although there is no requirement in the by-laws to that effect. They are elected by the members of the Club at the annual meeting. Nine members constitute a quorum at such meeting and generally about 15 out of the total membership of 1100 attend. The Board of Governors has no jurisdiction over the furnishing, operation, management, or control of the Club quarters, facilities or services. Their sole function is to pass upon candidates for membership and to make and enforce the by-laws and house rules; for that purpose they meet semimonthly at lunch at the expense of the Owner.
The quarters are located on the sixty-fifth floor of one of the buildings in the development and consist of an entrance lounge, two dining rooms known as the Rainbow Room (seating capacity 231 persons) and the Patio or the Rainbow Grill (seating capacity 156 persons) respectively, a buffet lounge (seating capacity 86 persons)
and two small private dining rooms (seating capacity 18 and 14 persons, respectively). The kitchen and other facilities for the service of food are located on the sixty-fourth floor.
There are two bars in the Club quarters, one solely a service bar where drinks are mixed for service by the waitresses at the dining tables in the Rainbow Room and at tables in the entrance lounge, and the other a combination service and open bar. One side of the latter bar is used to deliver drinks to the waitresses for service at the dining tables in the Rainbow Grill; the other side, where there are six bar stools, opens into the buffet lounge. Members may, if they so desire, order and ...