Emery, Bird, Thayer Dry Goods Co. v. Commissioner ( 1930 )

EMERY, BIRD, THAYER DRY GOODS CO., PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Emery, Bird, Thayer Dry Goods Co. v. Commissioner

Docket No. 46178.

United States Board of Tax Appeals

20 B.T.A. 796; 1930 BTA LEXIS 2034;

September 12, 1930, Promulgated

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">*2034 Amounts paid by petitioner to the Kansas City Chamber of Commerce in the taxable year on account of subscriptions and membership dues therein are deductible from gross income in such year as ordinary and necessary expenses, under the provisions of section 234(a) of the Revenue Act of 1926.

Phil D. Morelock, Esq., and Perry W. Shrader, Esq., for the petitioner.

Arthur Carnduff, Esq., and Charles T. Russell, Esq., for the respondent.

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LANSDON

">*796 The respondent asserts a deficiency in income tax for the year 1927 in the amount of $550.79. The following excerpt from the deficiency notice states the position of the respondent and is alleged as error by the petitioner:

You are advised that careful consideration has been accorded your protest together with the information submitted at the conference held in this office on August 30, 1929, as a result thereof, your contention that donations to the Chamber of Commerce Development Fund be allowed as a deduction has been denied. In accordance with Article 562, Regulations 69, sums of money expended for the exploitation of propaganda, including advertising other than trade advertising, are">*2035 not deductible from gross income. The contribution made by the corporation in the instant case to the Chamber of Commerce was for the purpose of increasing the population of Kansas City. In accordance with Office Decision (I.T.) 2375, Cumulative Bulletin VI-2, Page 76, which covers the instant case, contributions to a Chamber of Commerce fund to be raised for "industrial and publicity purposes" in the furtherance of building up a city are not allowable deductions from gross income. In connection with the decision of the United States Board of Tax Appeals in the case of Hirsch-Weis Manufacturing Company, Volume 14, page 796, you are advised that this decision has not been acquiesced in by the Commissioner.

FINDINGS OF FACT.

The petitioner is a Missouri corporation with its principal office and place of business in Kansas City, where it is engaged in the operation of a department store for the sale of merchandise at retail.

The Chamber of Commerce of Kansas City was organized in 1887 as "The Commercial Club." In 1916, by appropriate legal action, the present name was adopted. The purposes of the organization, as set forth in its amended articles of incorporation adopted">*2036 and filed in 1909 and not since changed, are as follows:

The purposes of this Association shall be to promote the welfare of the trade manufacturing interests and industries of Kansas City and vicinity, and to contribute to the development and extension of such interests in all lawful ">*797 ways; to acquire and disseminate valuable commercial and economical information, and encourage greater interest and a better understanding of the importance of manufacturing and trade industries as factors in our growth and prosperity; to promote just and equitable principles of trade and foster the highest commercial integrity; to increase acquaintanceship among its members and facilitate the speedy adjustment by arbitration of business disputes; to interchange views and secure concerted action upon matters of public interest; to discuss and correct abuses, using the means that may be best calculated to protect the interests and rights of its members as business men and citizens.

So far as pertinent to the issue herein the by-laws of the Chamber of Commerce relating to membership are as follows:

Section 1. The membership of the Chamber shall consist of two kinds, personal and firm">*2037 or corporation, and shall be composed of active, associate, non-resident, honorary and life members. All forms of membership shall be available only to white male citizens.

* * *

Section 10. Every active firm or corporation membership shall entitle the holder to be represented by two men who are members of the firm or regularly authorized representatives.

Section 11. Any person, firm or corporation may purchase additional memberships. They may assign such additional memberships to members of the firm or men in their employ and may change such names on the records of the Chamber at any time without cost by notifying the executive manager in writing. The executive manager shall place such requests for assignment of membership before the membership committee with the request that the membership records be corrected accordingly, but no such assignments shall take effect until approved by the board of directors. Memberships not thus assigned shall have no vote.

Income of the Chamber of Commerce from active membership dues is provided for in the by-laws as follows:

ARTICLE VI.

Section 1. Every active or personal member shall pay $30.00 and every active firm or corporation">*2038 member shall pay $60.00 dues annually. These dues shall be paid in advance at the time of joining and annually thereafter. Members may pay dues in two equal installments at six month intervals, but a new member choosing to pay dues for the six months' period instead of one year may not resign during the first year without payment of dues for the entire year.

Prior to 1927 the Chamber of Commerce was operated on an annual budget of approximately $125,000 and, at the end of that year, its books showed a deficit of $51,000. At that time many of the leading business men of Kansas City were greatly dissatisfied with its activities and the results thereof and initiated a movement to organize a separate commercial body. The dissatisfaction resulted in the adoption of a plan formulated by a group of business men which provided that the income of the Chamber of Commerce should ">*798 be increased to $450,000 per annum. The following excerpt from this plan sets forth the purposes for which the additional income was to be used:

It is contemplated that under this plan the new organization will expend $450,000 a year for five years to build up present industries, wholesale houses, ">*2039 retail stores and every business activity, to secure new industries that will add to and stabilize the city's pay rolls, allowing the Chamber of Commerce to further the best interests of greater Kansas City and its outlying territory.

The additional income required under the enlarged plan or program was secured by subscription from members and the sale of new memberships. The enlarged income was used for the same purposes for which the smaller previous budget had been employed. No part of the income of the Chamber of Commerce, either before or after the adoption of the plan providing for increased revenues and enlarged activities, was used for the purchase of factory sites or any other specific purpose. For purely psychological effect the additional income was called a "Development Fund."

The enlarged program of the Chamber of Commerce became fully effective about June 30, 1928. During the eighteen months prior thereto, 425 new enterprises located in Kansas City; in the first 18 months subsequent thereto, 504 new concerns began business there. From January 1, 1926, to June 20, 1928, 41 representative Kansas City business concerns required an increase of 3,000 employees, which">*2040 was at the rate of 10 per cent per annum. Between July 1, 1928, and June 30, 1929, 209 new enterprises were located in Kansas City and 295 old concerns made substantial enlargements of their plants and employed personnel. This growth in a single year increased pay rolls disbursed in the city in an amount in excess of $8,000,000. Among the new industries secured through the enlarged program of the Chamber of Commerce were plants of the General Motors Co., for Chevrolet assembling and distribution, of the Fisher Body Co., and the American Tobacco Co.

Prior to 1927 the petitioner had an annual average of 3,000 applications for opening new accounts. During 1927, 1928, and 1929 the number of such applications was 3,300, 3,700, and 3,900, respectively. This increase was due to the location of new industries in Kansas City. A large number of the officers of General Motors, the Fisher Body Co., the American Tobacco Co., and other concerns secured for Kansas City through the activities of the Chamber of Commerce made possible by its increased revenues, became customers of the petitioner, and its business turnover was thereby materially increased.

Prior to the adoption of the enlargement">*2041 program the petitioner annually paid the Chamber of Commerce the amount of $720. After the adoption of such plan it increased its payments to $4,300 per ">*799 annum, for all of which it had the privilege of assigning additional memberships to its officers and employees.

In the taxable year petitioner paid the Chamber of Commerce $4,300 as its subscription to the enlarged income of that body. In its income-tax return for such year it deducted the amount so paid from its gross income as an ordinary and necessary expense. Upon audit of such return the Commissioner disallowed all but $720 of the deduction so claimed and asserted the deficiency here in controversy.

OPINION.

LANSDON: The only error pleaded here is that the Commissioner improperly disallowed, in part, a payment in the amount of $4,300 which the petitioner made to the Kansas City Chamber of Commerce in the taxable year. The theory of the respondent is that the amount disallowed was a contribution for propaganda for the purpose of increasing the population of Kansas City, and does not come within the category of ordinary and necessary business expenses.

">*2042 Our findings of fact disclose that the amount disallowed was not a contribution, but a payment to the Chamber of Commerce in the nature of subscriptions for memberships and annual dues. The evidence is persuasive and convincing that such memberships and the subscriptions and dues paid on account thereof were intended to and did materially increase the volume of the petitioner's business. The facts here are very similar to those in . We think our decision in that proceeding controls the issue here involved. See, also, ; ; ; .

Reviewed by the Board.

Decision will be entered for the petitioner.