Chattanooga Auto. Club v. Commissioner

12 T.C. 967, 1949 U.S. Tax Ct. LEXIS 175

• Court: United States Tax Court
• Decided: June 8, 1949
• Docket: Docket No. 15138
• Status: Published

Opinions

OPINION.

Mukdock, Judge-.

The Commissioner has provided in his regulations for many years that an organization will not be deemed exempt if it engages in traffic for profit, Regulations 33, article 72, to Regulations 111, section 29.101 (9)-l, although a profit from an activity merely incidental to its primary purpose may not render it subject to tax. This petitioner has gone beyond its original purpose as set forth in its bylaws. It was not operated during the taxable year “exclusively for pleasure, recreation, and other nonprofitable purposes.” Sec. 101(9), I. R. C.¹ Its principal activity was the rendering of services of a commercial nature to members at a lower cost than they would have to pay elsewhere. It thereby competed with others rendering similar services as a regular business for profit. Apparently it paid commissions to persons acting as its salesmen to induce motorists to join. The commercial services included furnishing bail bonds, accident insurance, lock and key service, notarial service, towing, and emergency road service. Some of these were fully paid for by the annual dues, while the dues paid for part only of the others. These were not merely incidental to some other transcending purpose of the petitioner. The petitioner was definitely engaged in business of a kind generally carried on for profit. It had some profits from that business and its members profited by receiving the service cheaper than they could have obtained it elsewhere. Such an organization is not exempt from tax under section 101(9). We respectfully disagree with the holding of the court in California State Automobile Association v. Smyth, 77 Fed. Supp. 131.

Reviewed by the Court.

Decision will be entered for the respondent.

1 SEC. 101. EXEMPTIONS FROM TAX ON CORPORATIONS.

The following organizations shall be exempt from taxation under this chapter—

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(9) Clubs organized and operated exclusively for pleasure, recreation, and other nonprofitable purposes, no part of the net earnings of which inures to the benefit of any private shareholder;

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