Opinion
Hearing Granted Jan. 27, 1941.
Appeal from Superior Court, Sacramento County; Peter J. Shields, Judge.
Action by the Union League Club against Charles G. Johnson, Treasurer of the state of California, for recovery of sales taxes paid under protest. From a judgment for the plaintiff, the defendant appeals.
Affirmed.
COUNSEL
Earl Warren, Atty. Gen., and H.H. Linney and A.A. Kragen, Deputy Attys. Gen., for appellant.
Peter tum Suden and Richard tum Suden, both of San Francisco (Nat. Schmulowitz and Peter S. Sommer, both of San Francisco, of counsel), for respondent.
OPINION
PULLEN, Presiding Justice.
The Union League Club, a bona fide social club, for a consideration, furnished to its members, during the period between January 1, 1936, and September 30, 1937, certain tangible personal property as food, liquors, cigars, etc. The Board of Equalization of the State of California, hereinafter referred to as the board, deeming that the club was a retailer, within the provisions of the California Retail Sales Tax Act, demanded from the club a sales tax, being three per cent of the gross receipts collected by the club for the furnishing of the tangible personal property mentioned above.
The club paid these taxes under protest, and brought this action to recover the same. A judgment was rendered in favor of the club, and this appeal was taken from that judgment.
The taxes here under consideration were levied and paid subsequent to the amendment of 1935 and prior to the amendment of 1937, and we are here concerned solely with the law as it existed in 1935.
The various sections of California Retail Sales Tax Act (Stats.1933, page 2599, as amended in 1935, St.1935, pp. 1225, 1252, 1256) pertinent to our consideration here, reads as follows: Sec. 3. "For the privilege of selling tangible personal property at retail a tax is hereby imposed upon retailers at the rate of two and one-half per cent of the gross receipts of any such retailer from the sale of all tangible personal property sold at retail in this State on and after August 1, 1933, and to and including June 30, 1935; and at the rate of three per cent of the gross receipts of any such retailer from the sale of all tangible personal property sold at retail in this State on and after July 1, 1935. Such tax shall be paid at the time and in the manner hereinafter provided and shall be in addition to any and all other taxes."
Section 2 of the act provides in part as follows:
"(a) ‘Person’ includes any individual, firm, copartnership, joint adventure, association, corporation, estate, trust, business trust, receiver, syndicate, this State, any county, city and county, municipality, district or other political subdivision thereof, or any other group or combination acting as a unit, and the plural as well as the singular number.
"(b) ‘Sale’ means any transfer of title or possession, or both, exchange, barter, lease or rental, conditional or otherwise, in any manner or by any means whatsoever, of tangible personal property, for a consideration, and includes the fabrication of tangible personal property for consumers who furnish either directly or indirectly the materials used in the fabrication work and the furnishing, preparing or serving for a consideration of any tangible personal property consumed on the premises of the person furnishing, preparing or serving such tangible personal property. A transaction whereby the possession of property is transferred but the seller retains the title as security for the payment of the price shall be deemed a sale.
"(c) A ‘retail sale’ or ‘sale at retail’ means a sale to a consumer or to any person for any purpose other than for resale in the form of tangible personal property, except that the expressions ‘transfer of possession,’ ‘lease’, and ‘rental’ as used in subdivision (b) of this section shall mean and include only such transactions as the board, upon investigation, finds to be in lieu of sales as defined in subdivision (b) of this section without the words ‘lease or rental.’
"(d) ‘Business’ includes any activity engaged in by any person or caused to be engaged in by him with the object of gain, benefit or advantage, either direct or indirect.
"(e) ‘Retailer’ includes every person engaged in the business of making sales at retail; provided, however, that when in the opinion of the board it is necessary for the efficient administration of this act to regard any salesmen, representatives, peddlers or canvassers as the agents of the dealers, distributors, supervisors or employers under whom they operate or from whom they obtain the tangible personal property sold by them, irrespective of whether they are making sales on their own behalf or on behalf of such dealers, distributors, supervisors or employers, the board may so regard them and may regard the dealers, distributors, supervisors or employers as retailers for purpose of this act."
Section 9 of the act requires every retailer to file quarterly returns with the board and to pay a sales tax based upon such returns.
Section 17 of the act provides in part as follows:
"*** For the purpose of the proper administration of this act and to prevent evasion of the tax hereby imposed it shall be presumed that all gross receipts are subject to the tax hereby imposed until the contrary is established. ***"
Section 31 of the act allows a taxpayer to pay the disputed taxes under protest and to bring an action within sixty days to recover the same.
The question here presented is whether a bona fide social club is a retailer within the purview of the Retail Sales Tax Act, and taxable as such.
The Union League Club occupied a building in San Francisco wherein are maintained some ninety bedrooms, dining rooms, a barber shop, a swimming pool, a gymnasium, a library and reading rooms, a sun room, locker rooms, a billiard room, and bar. The club is not open to the public but has a membership of approximately 600 who pay dues, and in addition each member individually pays for what he consumes in the dining room or at the bar.
The purposes of the club are those expressed in Article 2 of its Constitution, and provides that this club "is instituted to bring about the association of citizens in the United States in support of, to promote and inculcate the principles of the Republican Party, to encourage and sustain absolute and unqualified loyalty to the Government of these United States, to further, by social, moral and political influence, to assist in advancing the cause of good and wise government and the honest and patriotic administration thereof, and by the same means to preserve the political equality of all men before the law, and in furtherance of these objects to establish, maintain and conduct a clubhouse and all conveniences usually connected therewith, and in every manner to deal in such property as may be necessary or convenient to carry out the purposes above expressed or intended."
Among the by-laws, No. 10 provides: "No member of the club shall receive any salary or emolument of any kind or nature from the funds or property of the club, nor shall any member of the club be employed by the club within 90 days after he shall have ceased to be a member of the club."
Article No. 13 provides: "At the request of a member any nonresident of San Francisco residing more than 50 miles distant may be admitted to the privileges of the club for a period of two weeks upon the consent of two members of the Board of Directors. Members may bring resident visitors to the club but such resident visitors shall not be extended any courtesies or privileges of the club."
It is the contention of appellant that respondent is a retailer within the meaning of the Sales Tax Act for two reasons, first, the express language of the act includes respondent; and secondly, if there is any ambiguity in the act itself, it must be construed in the light of the administrative interpretation by the State Board of Equalization from the effective date of the California Sales Tax Act.
Appellant, seeking support in the language of the act, points to Section 3 thereof which imposes a tax upon retailers. Section 2, Sub. (e) defines a retailer as including every person engaged in the business of making sales at retail. The act defines a person as including any association or group or combination acting as a unit. Section 593 of the Civil Code, as it read in 1880, under which section the respondent was incorporated, provides that "Any number of persons associated together *** may incorporate ***", and the next succeeding section states, "Any number of persons associated together *** may incorporate such association ***." From these sections appellant concludes that respondent is an "association" and as such is a "person" within the provisions of Section 2 (a) of the Sales Tax Act.
As to the meaning of a "sale", appellant cites Section 2 (b) of the act as "any transfer of title *** in any manner or by any means whatsoever, of tangible personal property, for a consideration ***", and a "sale at retail" is defined in Section 2(c) as a "sale to a consumer *** for any purpose other than for resale ***". Such being true, it is contended, the transfer of food, etc., constituted a sale for a purpose other than for resale, to-wit, for consumption, and therefore the transfers were sales at retail within the purview of the act.
Business is defined in Section 2(d) as "any activity *** with the object of gain ***".
Appellant therefore contends that the transfers by respondent to its members of food, etc., constituted a sale for purposes other than resale, and that it was engaged in business with the object of gain. In addition to the foregoing analysis of the language of the act appellant cites us to State v. Zellner, 133 Ohio St. 263, 13 N.E.2d 235, and Ada County v. Boise Commercial Club, 20 Idaho 421, 118 P. 1086, 38 L.R.A.,N.S., 101. As to the second point that in case of an ambiguity in the act, it must be construed in the light of the administrative interpretation by the board since the effective date of the act.
In support of this principle appellant quotes from Cuzner v. California Club, 155 Cal. 303, 100 P. 868, 20 L.R.A.,N.S., 1095, and Helvering v. Reynolds Tobacco Co., 305 U.S. 587, 59 S.Ct. 101, 83 L.Ed. 371, and cases cited in 23 Cal.Jur. p. 776, Note 1.
In support of the judgment respondent claims there is no express language in the act which indicates that a social club is included within the definition of the word "retailer". It may be, respondent asserts, that the definition of "person" as found in the act might include a social club, but they deny that the definition of a "sale" or "business" or "retailer" may be so enlarged.
Without indulging in fine shades of meaning of the word, "business" it would seem that the language used in Cuzner v. California Club, 155 Cal. 303, 100 P. 868, 871, 20 L.R.A.,N.S., 1095, is a sufficient answer. It is there said that, "in its transactions with its members in the carrying on of the clubhouse looking simply to the giving to them such privileges in the property devoted to bona fide club purposes as they are all, in common, entitled to under the constitution and rules of the club, it is not engaged in business at all in the commercial or trade sense, as ordinarily understood."
It is not business in its broad sense that we are here considering but rather as an occupation for livelihood or profit— an activity for "gain, benefit and advantage". Here it is conceded that respondent is a social club and a nonprofit organization; that the service of food and drink to its members is but an incident to its main purpose; that it does not have customers; that it does not serve the general public and that its facilities and privileges are for the use in common by members and their guests only.
All who have any knowledge of the operation of a social club such as respondent, realize that the furnishing of meals is not the principal function of such an association, and that as a matter of fact the cost of such meals to the member is usually less than cost, which is made up from dues and other sources of revenue, the serving of food and liquor being merely one of the incidents of membership.
As again said in Cuzner v. California Club, supra: "The question, then, as it appears to us, is whether a bona fide social club, engaged in transactions of the character hereinbefore detailed, with the sole object, as we look at it, of distributing articles provided for the use of the members in such a way ‘that there shall not be unequal contributions to the treasury which purchases them’ (Klein v. Livingston Club, 177 Pa. [224] 231, 35 A. 606, 608, 34 L.R.A. 94, 55 Am.St.Rep. 717), is to be held to be within the purview of a law or ordinance which simply imposes a license tax upon the business of selling liquors and does not contain other provisions that show a clear intent to include them. Upon this question, we are satisfied that the great weight of authority is in favor of the proposition that they are not so included."
To the same general effect is Varcoe v. Alameda Lodge, 174 Cal. 549, 163 P. 909.
Bona fide social clubs have long been recognized in this state as a distinct class, and a club is now defined in Deering’s General Laws, 1937, Act 3796, section 2, paragraph (h), as follows: " ‘Club’ means a corporation or association which is the owner, lessee or occupant of an establishment operated solely for objects of social or athletic nature, having a bona fide membership list, and the majority of the members of which pay dues at least once in every year, but not for pecuniary gain, and the property as well as the advantages of which, belong to the members."
When the Revenue Laws of the United States (26 U.S.C.A. Internal Revenue Code, sec. 1710) imposed a special tax upon the dues or membership fees of a social, athletic or sporting club, many of such clubs attempted to claim that they were not in fact clubs but business organizations, thereby hoping to escape the tax, but without success. See Transportation Club of San Francisco v. United States, Ct.Cl., 17 F.Supp. 201; Chicago Engineers’ Club v. United States, Ct.Cl., 9 F.Supp. 680; Chance v. United States, Ct.Cl., 9 F.Supp. 1011.
Appellant calls our attention to and quotes at length from the case of Blauner’s, Inc. v. City of Philadelphia, 330 Pa. 342, 198 A. 889, where it was held that a club transaction was a transfer of possession for a consideration, and under the particular ordinance in question, constituted a sale, and was therefore subject to a tax. That case may be distinguished from the case here before us by remembering that the tax there involved was in the nature of a transaction tax rather than a sales tax as we are here considering.
An additional reason which impels us to conclude that respondent is not liable under the Act of 1935 is that in 1939 the legislature amended the Sales Tax Act to embrace club transactions. St.1939, p. 2170. In People v. Weitzel, 201 Cal. 116, 255 P. 792, 52 A.L.R. 811, where several cases to the same effect are cited, the court held that where changes have been introduced by amendment it is not to be assumed that they were without design; usually an intent to change the law is inferred.
More recently in Fresno v. DeCaristo, 33 Cal.App.2d 666, 92 P.2d 668; Mason v. Buck, 99 Cal.App. 219, 278 P. 461; Loew’s, Inc. v. Byram, 11 Cal.2d 746, 82 P.2d 1; Jensen v. Hugh Evans & Co., 13 Cal.2d 401, 90 P.2d 72, the doctrine has been reaffirmed that the amendment of a prior statute indicates an intent to change the pre-existing law.
It is also claimed that in case of an ambiguity in the act it must be construed in the light of the contemporaneous administrative interpretation of the department having to do with its enforcement, and we are referred to the testimony of certain of the officers of the tax department who testified they regarded clubs such as respondent as engaged in the business of selling tangible personal property and had so interpreted the law. No definite rules or regulations of the department, however, were promulgated to that effect, and in fact rule No. 32 of the Board of Equalization then provided, and still does, that "Gross receipts from sales of meals furnished by restaurants, hotels, boarding houses and caterers are taxable." No reference is made to social clubs. Also the question here presented only arose with the amendment of 1935, and these or similar actions were brought almost immediately after the payment of the protested tax.
It is also to be remembered that taxes such as are here considered are in invitum and are therefore to be strictly construed in favor of the taxpayer (Barker Bros. v. Los Angeles, 10 Cal.2d 603, 76 P.2d 97; Uhl v. Badaracco, 199 Cal. 270, 248 P. 917) and such taxes are not to be construed beyond the plain import of the language of the statute. Hughson v. Board of Equalization, 23 Cal.App.2d 281, 73 P.2d 290.
In view of all that has been said we believe the judgment must be affirmed. It is so ordered.
We concur: TUTTLE, J.; THOMPSON, J.