Appeal from the District Court of the United States for the Western District of Pennsylvania; F. P. Schoonmaker, Judge.
Before BUFFINGTON, DAVIS, and BIGGS, Circuit Judges.
BUFFINGTON, Circuit Judge.
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.
What are the predominant features of The Union Club? Is it social relaxation or business activity, supported and paid for by business companies for business purposes? This was pointed out in Bankers' Club v. United States, Ct. Cl., 37 F.2d 982, where the Court said [page 985]: "The issue is the purpose of the club." And in the Houston Club, Ct. Cl., 58 F.2d 487, where one of its chartered purposes was "to promote social intercourse among its members," the Court of Claims, before which many of these club cases come, says: "Though there may be social features incident to its general activities, yet if the social feature is a subordinate and merely incidental feature to the 'predominant' purpose of the organization, it is not a social club. This must be true unless all clubs where people congregate are social clubs, 'because practically all clubs may be said to have a feature of the social, using the term as having to do with human intercourse.'"
Indeed this general principle is recognized by the taxing authorities. Regulation 43, article 35 provides: "The purpose and activities of a club and not its name determine its character for the purpose of the tax." And article 36 exempts where "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."
Turning then to the questions involved as above indicated, we find at the outset a business purpose and practice which existed in no other club case, namely, that this was not a club of individuals who sought membership for social purposes, but a club supported and paid for by business corporations for business purposes. In that regard a vice president of the club testified:
"Q. Was it the custom for business houses to make arrangements for eating in the Club quarters? A. Yes.
"Q. Tell about that. A. If I may say this, the Steel Companies in town and the Banks all had memberships there; and if a Steel executive was moved out to Youngstown or Chicago, they usually transferred that membership to the man who took his place, and there were Steel tables there and Bank tables, and so on. The American Bridge had a table there and Jones and Laughlin had a table there, and the Union National Bank had a table in the corner there - Lloyd Smith and the McCunes - and the only entertaining, that is, lunch and dinner entertaining, that I knew was strictly business. During the Group 8 meetings of the Pennsylvania Bankers' Association, the Union National Bank, the First National Bank, the Mellon National Bank and others had luncheons there as their country correspondents and city depositories came in. During sales conferences of the Steel Companies they would have luncheons there or dinners there.
"Q. When you say that these various business houses had tables there, you mean tables which they used regularly at lunch time? A. That is right.
"Q. So that the members of a particular business house would usually congregate at a particular table? A. That is right.
"Q. And do you mean also that the various business houses paid for these? A. The business houses paid for the initiation of their members and paid for their dues.
"Q. That was the usual custom? A. It was customary. The Farmers Bank put me in there and paid my initiation and paid my dues while I was there. After I went to the Union National they paid my dues while I was there. The Jones and Laughlin Steel Corporation's men were all put in there by the corporation and their dues were paid up to a time when they had some resignations from them on account of ...