The opinion of the court was delivered by: SCHOONMAKER
These two suits were tried before the court without a jury. The plaintiff is seeking to recover federal taxes paid by the plaintiff upon dues and initiation fees during the period from June 1, 1935, to July 1, 1938. The action at No. 412 covers plaintiff's claim for the period from September 1, 1935, to March 1, 1936, and the plaintiff's claim is for $6,578.58 with interest. The action at No. 413 covers plaintiff's claim for the period from March 1, 1936, to July 1, 1938; and the plaintiff's claim is for $68,765.52, with interest.
The question at issue in the case is whether or not the plaintiff is a social club within the meaning of Section 413 of the Revenue Act of 1928, c. 852, 45 Stat. 791, 26 U.S.C.A. Int.Rev.Acts, page 441, and therefore subject to the tax there prescribed upon membership dues and initiation fees.
Treasury Department Regulation 43, promulgated under the Revenue Acts of 1926 and 1928 (revised October, 1928), defines a "social club" taxable under the Acts, as follows: "Art. 36 Social Clubs. -- Any organization which maintains quarters or arranges periodical dinners or meetings, for the purpose of affording its members an opportunity for congregating for social intercourse, is a 'social * * * club or organization' within the meaning of the act, 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, then it is a 'social * * * club or organization' within the meaning of the act. An organization that has for its exclusive or predominant purpose religion or philanthropic social service (or the advancement of the business or commercial interests of a city or community) is clearly not a 'social * * * club or organization.' Most fraternal organizations are in effect social clubs, but if they are operating under the lodge system, or are local fraternal organizations among the students of a college or university, payments to them are expressly exempt."
The plaintiff contends that it is not a social club taxable under the act, because such social features as it may have are not a material purpose of the organization, but are subordinate and merely incidental to the active furtherance of a different and predominant purpose, i.e., the furtherance of the business relations of its members who join it and use it as a meeting place with their associates and competitors in business conferences and in furtherance of their business relations.
The defendant, on the other hand, contends that plaintiff is a social club as defined by statute, and therefore taxable.
The test to be applied in determining whether or not a club is a social club taxable under the statute is stated by the circuit Court of Appeals of this Circuit in Union Club v. Heiner, 99 F.2d 259, as follows:
"The basic question in this case is whether The Union Club of Pittsburgh, the taxpayer, was in operation a social club and as such subject to taxation, or was it in operation a business luncheon club and therefore not subject to taxation.
"In determining that question the weight of the authorities indicates the test is whether, in its actual working, business was an incident to social or social features incidental to business."
Applying that test to the facts of these two cases, we must find, for the years involved in these two units, the Duquesne Club was a business club, and not a social club taxable under the act. Indeed, we find present in the instant cases, the very features which were held by the Circuit Court of Appeals in Union Club v. Heiner, supra, to render that club not to be taxable, towit, "that in operation, in purpose and in service it was a business club, largely financed by business companies for business purposes, and that whatever social elements were used were mere minor elements to the dominant purpose of business and business alone." Union Club v. Heiner, supra, 99 F.2d page 262.
The facts which lead us to the conclusion that plaintiff is a business club are these. The Club's location and activities are in the center of the business district of Pittsburgh. Practically its main use is during the luncheon period, at which time its facilities are used to capacity. Before and after this period the Club is little used, and save for the bedrooms and one small dining room, is closed down at night. The Club has about seventeen hundred members. The membership is largely made up of business men. Business leaders and corporation executives of Pittsburgh account for at least two-thirds of the membership. Because of the opportunities provided for business contacts through the Club, many corporations pay the club-dues of their higher officials. A large number of private dining rooms has been provided by reason of the demand for quarters where business matters could be discussed in privacy during the luncheon period. The chief use of the Club and its facilities is during the luncheon period. In many cases the same groups eat together from day to day. Many of these groups are from a given business concern or a given industry that meet daily at the Club for luncheon. Certain of the private dining rooms are rented by certain groups from month to month for business conferences of various types, including directors' meetings, meetings with business associates, and business competitors.
The large number of dining rooms maintained by the Club was designed to meet the demands of members, particularly business and industrial groups, who desire privacy at their luncheons when they discuss their business affairs. The groups are often made up of the executives of a business concern, who are entertaining business men from out of town. Members engage bedrooms at the Club for the use of their out-of-town acquaintances and associates.
Save for its business purpose, the Club offers little to maintain membership. There are practically no social activities, amusements, or entertainments. There are facilities for cards and billiards; but the use of these is insignificant. The Club has no entertainment committee. Ladies are not permitted in any part of the Club, except in a dining room designated for wives and families of members. The only exception to this rule is that on New Year's Day, when wives of members are admitted to all parts of Club. There is, however, no New Year's party. The Club has no place for dancing. There are no dances, receptions, card parties, or anything of that sort. There are no facilities for golf, hand-ball, tennis, or other sports. The Club maintains a health department, with a physician in charge, with facilities for massage, electrotherapy, and hydrotherapy. There is certainly nothing of a ...