Portland Co-operative Labor Temple Asso. v. Commissioner , 39 B.T.A. 450 ( 1939 )

PORTLAND CO-OPERATIVE LABOR TEMPLE ASSOCIATION, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Portland Co-operative Labor Temple Asso. v. Commissioner

Docket Nos. 89276, 93304.

United States Board of Tax Appeals

39 B.T.A. 450; 1939 BTA LEXIS 1032;

February 15, 1939, Promulgated

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A corporation which owns and operates a "labor temple" containing offices, meeting halls, an auditorium, recreation hall, etc., for the use and occupancy of labor unions and councils and their members, all the shares of which are owned by such unions and their members, is exempt from tax under the Revenue Act of 1934, sec. 101, as a labor organization.

Ivan F. Phipps, Esq., for the petitioner.

John H. Pigg, Esq., for the respondent.

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STERNHAGEN

The Commissioner, by disallowing deductions for "excessive depreciation", determined deficiencies in petitioner's income and excess profits taxes of $496.25 for 1934 and $467.53 for 1935. Petitioner contends that it is exempt from all income and excess profits taxes; and that, if it is not entirely exempt, the depreciation deduction has been incorrectly determined.

FINDINGS OF FACT.

The petitioner is an Oregon corporation, with its principal office and place of business at Portland, where it filed income tax returns for the years 1934 and 1935. It was organized in June 1918 under articles of incorporation which are, in part, as follows:

KNOW ALL MEN BY THESE PRESENTS, that we, the undersigned, have this day voluntarily associated ourselves together for the purpose of forming a co-operative corporation, under Chapter 226 of the General Laws of the State of Oregon for the year 1915 as amended by Chapter 411 of the General Laws of 1917.

And we certify that the name and objects of said Association are as follows:

1. That the name of said corporation is the Portland Co-operative Labor Temple Association, and its principal place of business is the City of Portland, Oregon.

2. To be of mutual assistance to each other in all matters relating to our industries and to secure for ourselves and our children the highest mental, moral and spiritual development.

3. To manufacture and to buy and sell merchandise and labor products of every kind and character, both on its own account and on commission.

4. To promote, establish, maintain and operate places for education, instruction, amusement and entertainment.

5. To generate, buy and sell and rent electric and other power, light and heat.

6. To issue bonds and notes, and to purchase, buy, sell, borrow and loan money on notes, mortgages, bonds and other securities and investments.

7. To acquire by purchase, lease or otherwise, and to rent, cultivate, improve, lease, sell, convey, mortgage and otherwise dispose of lands, lots and real property of all descriptions.

8. To promote, establish, maintain and operate the business of a publisher and printer of books, pamphlets, newspapers and other periodicals, and of a bookbindery and all branches of the printing and publishing trades and business.

9. To establish, maintain, operate and carry on every kind of lawful business, trading and occupation, and generally to do anything and everything whatsoever necessary, proper, convenient or expedient to carry into effect the purposes aforesaid, in furtherance and not in limitation thereof, and of any and all objects and purposes hereinbefore expressed.

At the beginning of the calendar year 1934 and at the close of the calendar year 1935 petitioner's outstanding common capital stock amounted to $287,478 and $288,975.50, respectively. The articles of incorporation provide with respect to its capital stock:

15. The stock of this corporation may be purchased, owned, sold and transferred by any member of a recognized Union or Labor Organization, but it shall be issued only to Organizations recognized by the Central Labor Council of Portland and Vicinity as in truth and in fact being Trades Unions or Labor Organizations, any such shares of stock purchased by any person except such a Trades Union or Labor Organization shall be issued in the name of an Organizations [sic] or Union being a stockholder, as Trustee for the person owning and paying for the same, and it shall be held in trust and voted by such Union or Organization for the benefit of the owner.

17. Before the owner of said stock can sell or transfer the same to another person, he shall offer it for sale, not exceding [sic] the market price, to the Union or Organization holding it in trust for him, which shall accept or reject this offer within thirty days after its receipt in writing, and if not so accepted then he shall offer it to this Association, which shall accept or reject this offer within thirty days further. Such offers shall be made in writing to the Secretary of said Organization and Association.

18. The president of each Union or Labor Organization owning or holding stock in this Association and recognized by the Central Labor Council of Portland and Vicinity, or such other member of the Union as may be designated, when he presents his credentials to the secretary of the Association and is recognized by the stockholders meeting, shall vote the stock held by his Union or Organization whether owned or held in trust and shall vote the same in accordance with any instructions that may be given him by a majority of the members present at a regular meeting of his Union, and on action proposed in said stockholders meeting concerning which he has received no instruction, said representative shall vote and act in accordance with his own judgment.

19. If any Union or Labor Organization recognized as herein provided, and owning stock in this Association or holding stock as trustee, shall dissolve or for any reason retire from business, such stock shall be offered to the Association at its market value in like manner as stock owned by a private person must be offered before the same is offered for sale to any person. Subject to the foregoing provisions stock may be sold and transferred in this Association in like manner as stock in corporations organized wholly for profit, except that all stock in this Cooperative Association must be held in trust and voted by a Labor Union or Organization recognized as such by the Central Labor Council of Portland and Vicinity in accordance with the rules herein stated.

During the years 1934 and 1935 all of petitioner's stockholders, according to its stock register, were labor unions. An undisclosed portion of the outstanding capital stock was owned by individual members of the labor unions and councils in whose mame the stock was registered on petitioner's books.

Petitioner, during the years 1934 and 1935, owned and operated an office building in Portland known as the Labor Temple, containing offices and suites, meeting halls, an auditorium, a recreation hall, two bars, cigar store, barber shop, pool room, and restaurant. The offices are rented to and occupied by labor unions and the Oregon State Federation of Labor, Central Labor Council, Building Trades Council, and Metal Trades Council. The auditorium and meeting halls are rented exclusively to labor unions, and on certain occasions they devote those facilities to wrestling matches and dances, which are open to the public, and for which an admission fee is charged. The use of the recreation hall is restricted to members of the labor unions which are shareholders of petitioner, and signs are posted in the hall stating that it is for the use of members only. Not more than 2 percent of the persons who use the restaurant are nonmembers of the unions, and less than 1 percent of those using the other facilities are nonmembers.

Prior to the erection of petitioner's building in 1922 there were about 162 labor unions in Portland. They had meeting places both in and outside of the city. The building was erected for the purpose of providing a home for those labor unions. Petitioner does not itself maintain any employment facilities, but its shareholder unions maintain such facilities. A substantial number of the individual members of the labor unions engaged in seasonal occupations use petitioner's building as their headquarters for the purpose of obtaining employment through the facilities offered by the labor unions.

Petitioner's receipts and expenses during the years 1934 and 1935 were:

	1934	1935
RECEIPTS
Bar	$35,874.40	$36,765.35
Bar - auditorium	4,524.19	4,804.17
Barber shop	1,829.00	2,173.00
Cigar store	10,324.33	12,618.56
Cigar store miscellaneous	390.39	587.60
Pool room	974.65	1,393.10
Restaurant	17,354.59	24,785.69
Over and short		14.89
Trade checks	961.45	1,041.75
Auditorium rentals	4,118.09	3,219.51
Auditorium advertising	475.19	1,161.78
Office rentals	11,107.65	13,807.66
Hall rentals	11,274.75	12,843.75
Basement rentals	4,500.00	4,500.00
Basement lockers	21.25	23.50
Telephones	5,968.86	7,646.53
Discounts	580.06	638.55
Sundry income	176.29	192.30
Total	110,455.14	128,217.69
EXPENSES
Bar	$25,358.51	$29,046.24
Bar - auditorium	3,155.86	3,355.58
Barber shop	1,768.62	2,079.37
Card room	3,676.22	3,793.84
Cigar store	9,931.61	10,898.50
Pool room	2,172.66	2,036.62
Restaurant	17,801.78	24,938.27
Auditorium	487.51	308.60
Engine room	4,492.98	4,887.30
Labor - janitor	6,167.72	7,794.53
Telephone	5,673.51	7,460.72
Office salaries	3,785.30	4,368.26
Note interest	3,137.50	3,041.78
Light and power	2,409.24	2,528.39
Labor - elevator	2,365.81	2,372.16
Maintenance and repairs	1,700.85	2,196.01
Insurance	822.35	696.63
Building - miscellaneous expense	715.16	1,225.68
Water	345.68	376.24
Office expense	342.87	455.84
Printing and stationery	307.19	105.00
General expense	295.03	384.85
Lamp renewals	105.96	145.02
Over and short	69.63
Taxes	49.62	64.08
Advertising		546.94
Bad debts		221.29
Total	97,139.47	115,327.74

Services similar to most of those offered by petitioner in its building could be obtained elsewhere in the immediate vicinity. Petitioner's affairs were conducted with a view toward making receipts and expenses equal, so that the business as a whole would not produce a profit. It recently increased its rental rates because the rental phase of its business was being operated at a loss. Petitioner has never paid a dividend on its capital stock. On one or more occasions during the "depression" period, when petitioner was unable to meet its obligations, the deficits were made up through the sale of additional shares of its $5 par value capital stock for $10 per share. The extra $5 was used in the discharge of its obligations, and was treated on its books as "donated surplus."

During the early years of petitioner's existence a labor school was conducted by it with local college instructors and professors serving gratuitously. Subsequently, and during the years 1933 and 1934, a school was conducted in the building by the American Federation of Labor, through its commissioner of education, and during the years 1935, 1936, and 1937, by the Works Progress Administration, covering the history of the American labor movement and economic and social problems. The instructors were paid by the Works Progress Administration, but no charge was made for the use of the facilities.

Petitioner filed corporation income and excess profits tax returns for the years 1934 and 1935, disclosing net losses of $378.28 and $1,604.54, respectively. The depreciation deductions taken by petitioner, and respondent's determinations thereon, are:

	1934	1935
Depreciation deducted:
Labor Temple Building	$9,941.11	10,032.60
Furniture and fixtures	3,752.84	4,461.89
Total	13,693.95	14,494.49
Depreciation allowed:
Labor Temple Building	10,083.90	9,353.17
Furniture and fixtures	418.44	891.27
Total	10,502.34	10,244.44
Amount disallowed	3,191.61	4,250.05

The depreciation allowances in respect of petitioner's building were computed by respondent, for both 1934 and 1935, upon an estimated useful life of 33 years. The computation for 1934 was based upon an assumed completion of the building in 1922, while the computation for 1935 was based upon an assumed completion in 1920. The building was completed and first occupied in 1922.

Petitioner purchased furniture and fixtures for its building during the years 1922 through 1935, inclusive, at a total cost of $44,618.90. Of this amount $28,272.62 was expended in the years 1922-1924. The useful life of the furniture and fixtures was 12 1/2 years. Petitioner did not deduct depreciation thereon in the years 1922 through 1925.

OPINION.

STERNHAGEN: The Revenue Act of 1934, like every revenue act since 1909, carries the following provision:

SEC. 101. EXEMPTIONS FROM TAX ON CORPORATIONS.

The following organizations shall be exempt from taxation under this title -

(1) Labor, agricultural, or horticultural organizations.

The petitioner claims to be a "labor * * * organization" within the meaning of the statute.

The statutory term has never been defined and has never been put in issue. It was applied by the Solicitor of Internal Revenue in the latter part of 1924 to exempt a corporation engaged in publishing a labor paper the expenses of which were borne by "labor organizations." S.M. 2558, III-2 C.B. 207. The rationale was that the "labor organizations" bearing the expense could have printed and distributed the paper themselves without impairing their exemption and hence the exemption was available to their corporate instrument which did no more.

The evidence here shows a similar situation. The labor unions and councils owned all petitioner's capital stock, and its building was wholly devoted to their purposes and uses. That these unions and councils were themselves "labor organizations" intended to be covered by the exemption does not admit of any doubt; that they might themselves have owned and operated the labor temple building without forfeiting their exemptions is also plain, and hence there is reason to treat their separate corporate agency as an exempt "labor organization", as long at least as it confines its circumstances and activities within such limits. The incidental use of the facilities of the building by casual guests to the negligible extent shown by the evidence does not militate against this opinion. Trinidad v. Sagrada Orden de Predicadores,263 U.S. 578">263 U.S. 578.

The term "labor * * * organization" is not easy to define either connotatively or denotatively. The word "organization" appears in application to three classes - labor, agricultural and horticultural, and is therefore not a technical word nor is it part of "labor organization" as a term of art. It has no such specific limitations as would a statutory definition like that appearing in section 2, subdivision (5), of the National Labor Relations Act, 49 Stat. 449. It is freely used in common speech. See American Steel Foundries v. Tri-City Central Trades Council,257 U.S. 184">257 U.S. 184, 195, 208: NationalLabor Relations Board v. Jones & Laughlin Steel Corporation,301 U.S. 1">301 U.S. 1; National Labor Relations Board v. Fruehauf Trailer Co.,301 U.S. 49">301 U.S. 49; National Labor Relations Board v. Pennsylvania Greyhound Lines, Inc.,303 U.S. 261">303 U.S. 261. The term has been used continuously for 30 years to bestow tax exemption, and it never has been found desirable by Congress to qualify it or by the administrator to give it a narrowing interpretation. There is no occasion to attempt a definition now. It bespeaks a liberal construction to embrace the common acceptation of the term, including labor unions and councils and the groups which are ordinarily organized to protect and promote the interests of labor. The petitioner, we think, was within such a category during the years 1934 and 1935, and was therefore exempt from tax.

Decision will be entered for the petitioner.