*1 v. STATES HCSC-LAUNDRY UNITED February 23, 1981 No. Decided 80-338.
Per Curiam. cor- nonprofit Pennsylvania HCSC-Laundry is a
Petitioner of that the law poration. organized in 1967 hospital laun- operate maintain Commonwealth “[t]o hospitals public for those dry supply program and linen organized facilities hospitals or related health non-profit exclusively religious, charitable, or edu- scientific, purposes with cational that contract [it].”1 *2 provides laundry Petitioner and linen service to non- profit hospitals and to an ambulance All service. these are in Pennsylvania. organization located eastern Each served from possesses a certificate of federal income taxa- (c) tion under of the Internal Revenue of Code 26 U. (c)(3).2 S. Each participating hospital C. pays membership annual upon dues based bed capacity. The ambulance pays no dues. only Petitioner’s other (a) income is charge laundry derived for and linen upon service based budgeted (b) costs and charge of 1% per pound laundry. cents of Budgeted operat- costs include quoted language petitioner’s incorporation, is from articles of May 29, amended 1970. The articles petitioner’s further state that cor porate purposes accomplished are to be “in a manner consistent with provisions (c) (3) of Section 501 of the- Internal Revenue Code of 1954.” (CA3 428, 429, 1980). See 624 F. 2d n. 1 (a) (c) Subsections §501, and of pertinent here, to the extent read: “(a) Exemption from taxation “An (d) described' in (a) subsection or or section
shall be from taxation under this subtitle unless such denied under section 502 or 503.
“(c) exempt organizations List of following
“The (a): are referred to in subsection “(3) Corporations, any community foundation, and chest, fund, or- or ganized exclusively scientific, testing religious, charitable, for public safety, literary, purposes, or national educational or to foster or international sports (but only part amateur of its competition if no activities provision involve the equipment), of or for athletic facilities or prevention cruelty of earn- animals, part children or the net no ings of which inures to any individual, the benefit private or shareholder part no substantial of carrying propaganda, activities of which on otherwise attempting, to legislation provided influence (except as otherwise (h)), subsection and which in, participate does not or intervene (including the publishing or distributing any cam- statements), political paign any on behalf of public candidate for office.” replacement. and linen
ing retirement, debt expenses, charged placed in excess of costs have been amounts a fund acquisition replacement. equipment earnings net petitioner’s No inures to the benefit of any individual. Lehigh Valley
Petitioner was formed after Health Plan- nonprofit, off-premises that a ning shared, Council determined requirements of the laundry would best accommodate the hospitals respect quality member with to both service and investigated The Council had various al- economies scale. concept because no rejected joint had ternatives. laundry sufficient facilities to serve member had an offer for than A commercial had declined itself. most of the other laundry business of all the hospitals, *3 managing capable not available commercial laundries were heavy total volume. cost at a equipped built laundry plant Petitioner’s was and from through loans financed $2 of about million. This was hospitals 10 of the 15-year contracts from banks, local with approximately employs Petitioner used as collateral. persons. (3) (c) 501§ for petitioner applied
In 1976, Service Revenue Internal income from federal taxation. grounds exemption application on denied the a which provision the exclusive (e) of the Code was reads: Section “(e) Cooperative hospital service or- treated be organization shall purposes title, an “For of this if— purposes, exclusively charitable operated for ganization organized and solely— “(1) organized organization is and such following “(A) perform, basis, one or on a centralized anis which, performed on its own behalf (cid:127) taxation (c) arid organization described subsection perform- exercising or (a), activities would constitute under subsection data exemption: constituting basis for purpose or function ing the clinical, food, collection, bitting and warehousing, purchasing, processing, center, communications, record laboratory, printing, engineering, industrial organization qualify as hospital could “an cooperative operated exclusively for charitable organization organized and exempt. (e)(1) Because subsection therefore purposes” peti reasoned that laundry, not mention Service (A) does exemption. to tax tioner entitled corporate tax return duly filed its federal income Petitioner year June 1976. That return showed for its fiscal ended $10,395. a tax of The tax was $123,521 income of taxable filed claim for refund Shortly petitioner paid. thereafter, Service took no when the Internal Revenue of that tax and, six see 26 U. on the claim within S. C. action months, in the United commenced this refund suit (a)(1), Pennsylvania. District of for Eastern States District Court summary judg- cross-motions stipulated On facts and holding petitioner, in favor of the District Court ruled ment, described organization as an that it was entitled to States (3). Supp. (1979). The United in 501 F. reversed. Appeals Circuit, however, Court of Third under which provision held that was the exclusive in- could obtain an cooperative hospital laundry services exemption, come tax and that the omission list of activities demonstrated (e)(l)(A)’s specific from 501§ deny exempt status intended (1980). hospital service 2d 428 laundries. F. per- education personnel (including testing, training, and selection,
sonnel) services; and *4 of
“(B) hospitals each perform solely such for two or is— which exempt from “(i) (3) is organization an which described in subsection taxation (a), under subsection (c) (3) “(ii) in subsection part organization a constituent of an described which, organized (a) exempt is and from taxation subsection de- organization operated separate and as a entity, would constitute in (c)(3), scribed subsection or State, States, the District “(iii) a owned and the United States, political subdivision Columbia, possession of a or a or of the United foregoing.” agency instrumentality any or an or of of the
5 is in conflict Appeals the Court ruling Because and we now certiorari, elsewhere,4 grant we with decisions affirm. the determina starting point in “The Court has said:
This
principle
the cardinal
income’ is
scope
'gross
tion of the
'to use the
income tax intended
creating
”
v. Kowal
Commissioner
taxing power.’
full
of its
measure
Helvering
v.
ski,
quoting
(1977),
434
S.
82
77,
U.
Clif
ord,
(1940).
(a)
Code,
See
S.U.
taxa
income
system
our
of federal
(a).
S.
Under
U.
C.
cor
income of a
every
gross
element of
person,
tion, therefore,
there is a statute
subject to tax unless
porate or
individual,
or element.
exempts
person
some rule
law
and
exemption,
such an
(a)
(c) (3) provide
Sections 501
and
description set
fitting the
complete
corporation
for a
one,
re-
the subsection’s
(c) (3)
fulfilling
forth
subsection
And
But subsection
is also
quirements.
of a
expressly
concerns the tax status
that such an
organization.
provides
of “data
consist
among other
its activities
if,
things,
collection,
billing and
processing, purchasing, warehousing,
com-
printing,
clinical, industrial
food,
engineering, laboratory,
selection,
(including
personnel
record
center,
munications,
services.”
personnel)
training,
and education
testing,
opera-
hospital’s
Laundry
service,
and linen
so essential
North
ruling
are
Among
the eases
conflict with the Third Circuit’s
States,
Services,
Cl.
ern
Central
Inc.
United
219 Ct.
v.
California
States,
Hospital Services, Inc. v. United
(1979),
and United
(3) clearly entitles claimed legislative to the history, Without reference Govern- benefit of appear to have the skirmish, ment statutory construction principle specific basic that a is a general provision controls over a statute, (e), here subsection in- particularly such as subsection when the two are (c)(3), both closely being parts in fact positioned, terrelated relating from tax. See § 501 Bulova Watch Co. v. United States, (1961). 753, U. S. legislative history provides strong
Additionally, however, support position. conclusive for the Government’s persuades us that ex intended subsection be clusive and controlling cooperative hospital organi service Prior zations. to the enactment of subsection the law to the hospital organiza as tax status of service shared tions was uncertain. The Internal took the Revenue Service position that if two or tax-exempt hospitals created an entity perform entity commercial them, services for 54-305, was not entitled to exemption. See 1954-2 Rev. Rul. Cum. Bull. 127.5 See also amended, Code, 26 however, U. S. C. § 502. position, rejected This by the Court of Claims in Hospital Bureau Standards and Supplies, Inc. v. Supp. Ct. Cl. 6 Since the enactment of (e), subsection the Internal Revenue Service has adhered to view that provided is not entitled Rev. Rul. 69-160, 1969-1 147; Cum. Bull. 69-633, Rev. Rul. Cum. Bull. 121. *6 noting uncertainty expressly the the (1958).
560 After (e). See Revenue and Ex- enacted subsection law,6 Congress 1968, 90-364, § Act of Pub. L. 109 82 penditure (a), Control Stat. adjustment bill of
In the tax provisions considering sought (e), became subsection Senate ultimately 1968 that that a laundry in the list of services include provide could and still maintain hospital service Department supported Treasury The tax-exempt status. Cong. 7516, 8111-8112 See 114 Rec. the Senate amendment. (see however interests, of commercial (1968). urging At the Amendments R. Committee H. Hearings on Certain 94th 2d Cong., on Finance, before the Senate Committee accept the Conference Committee (1976)), Sess., In recom- of the Senate amendment. limited version only a managers on adoption (e), of subsection mending the or- hospital service that shared emphasized of the House were not entitled laundry performing services ganizations Conf. provision. new H. R. tax-exempt status under the Senate Com- (1968); Cong., Sess., 90th 2d Rep. 1533, No. Ways and on House Committee on Finance and mittee Ex- 1968, Act of Expenditure Revenue and Control Means, Sess., 1, 15414, 90th 2d Cong., of the Bill H. R. planation (Comm. 1968). Print Asso- urging at the of the American
Later, 1976, amend- proposed the Senate Committee on Finance ciation, list of that would have to the ment added on Hearings subsection H. R. specified (e)(1)(A). Sess., 2d Cong., Finance, the Senate Committee on 94th before (1976). 76-77 (1976); Rep. 94-938, pt. 2, pp. 2765-2772 S. No. the floor amendment, however, was defeated on 122 Cong. (1976). Senate. Rec. 744, (1967); R. Conf. Rep. Cong., Sess., No. 90th H. 1st 200-201 See S. Cong., Cong. Sess., (1967); 90th 1st Rec.
Rep. No. (1968). beyond dispute us of all it seems to that sub- this, view seemingly (e)(1)(A) despite gen- broad section specifies types of hos- language eral of subsection (c)(3), encompassed are within organizations that pital service Inasmuch as organizations. as charitable scope of statutory from the deliberately omitted laundry service inclusion in that list, refused specifically was indeed, list and, not entitled tax- is' inevitably follows that easily change the statute can status. is so inclined.7 whenever it *7 Appeals is affirmed. of the Court judgment
It is so ordered. for plenary the case White dissents and set Justice consideration. Stevens, dissenting.
Justice light summarily 501, § decides that read Today the Court nonprofit history requires that (e), §of 501 legislative of the exemption from be denied an cooperative hospital laundries re- satisfy the though they may tax, even federal income opinion, In 501(c)(3). my (a) quirements §§ full summary disposition because is ill-advised the Court’s requires in this case understanding question presented state history present underlying examination an hos- respect to the status of of the law with agree suggestion do not with the Court of Claims We made Northern Central Cl., Inc. v. 219 Ct. California 2d, 624, en 67, Congress “may at at F. have wished courage cooperative hospital exemptions, to which laundries new tax yet laun objections, commercial laundries made vehement leave such existing law exemptions dries free to obtain from the courts the considerations, might afford them.” The extended hearings, Committee the floor debates on all reveal informed was well necessarily recognize issue and made a deliberate that con decision. We gressional choice. against the statute read
pital organizations. When it is in isolation— even when read background indeed, — this plain language unambiguously entitles exemption. I In Internal Revenue 101 of the 1950, Congress amended paragraph dealing by adding Code of 1939 to that section a organizations.” 1950, with Revenue Act so-called “feeder (b), 994, paragraph Pub. L. ch. 64 Stat. 953. This change was substantial subsequently reenacted without 502(a) of the Internal Revenue Code of 1954.1 Treasury Department adopted regulation designed implement Regs. Ill, the feeder 101. Treas. provision (b).2 regulation 29.101-3 did not Although Specifi- (a) provides:
1 Section organization operated “An primary purpose carrying for the on a profit trade or business for sec- shall not be from taxation under ground profits tion 501 on the payable that all of its are to one or more organizations exempt from C. taxation section 501.” U. S. (a). regulation subsequently redesignated Regs. feeder Treas. (b) (1953). case, 39.101-2 regulation, to this This insofar as relevant *8 appears substantially original (b), Reg. its form 1.502-1 as Treas. (b) (1980). CFR 1.502-1 provides, pertinent part: subsidiary organization
“If a itself be tax-exempt organization of a would exempt ground on the ex- integral the that its of activities are an empt parent activities of organization, the not be lost its will because, a the as matter of accounting organizations, between the two subsidiary profit organization, parent derives a dealings from its with its example, subsidiary pur- for organization a the sole operated which is for pose power of a tax- furnishing by parent organization, electric used exempt organization, educational activities. carrying on its educational However, op- subsidiary the organization if it is exempt is from tax not primary the purpose erated for carrying business of on trade or exempt be an ac- (that would unrelated is, trade or to business unrelated tivities) regularly example, by parent carried For organization. on the subsidiary organization operated purpose if a of fur- primarily is for the nishing power organization parent electric to consumers other than its it organizations, service hospital cooperative cally address cooperative considered ven- Treasury the indicate did of purpose pro- for the tax-exempt entities by operated tures nonexempt feeder those entities to necessary viding organizations.3 applied regulation first Service Internal Revenue in a 1954 Rev- hospital cooperative Bull. Cum. 1954-2 54-305, Rui. Rev. Ruling,
enue organized corporation and held that the Service Ruling, operating maintain- purpose primary for the operated benefit of its members —tax- the for purchasing agency ing a institutions —fell within other charitable exempt hospitals not entitled to income thus regulation feeder the at issue realized corporation exemption. substantial exempt subsidiary organizations), (and parent’s tax-exempt it is not the regularly be an unrelated trade or business if since such business would organization. Similarly, parent if the is carried on the organizations, operated exempt and is for the owned several unrelated purpose furnishing power them, not electric each regularly such business be an unrelated trade or business if since by any tax-exempt organizations.” carried on one apparently cooperative organi These ventures were considered feeder they generating purpose zations whether or were profits. Despite governing statute, applica (a), fact that only organizations “operated purpose carrying ble primary profit,” implementing regulation, on trade or business for 1.502- (b), profit” requirement. does not mention the “for In several cases rejecting Treasury’s orga contention that nonexempt feeders, Treasury’s nizations are emphasized courts have profit” requirement failure take into account the “for of the statute. g., Hospital See, e. Supplies, States, Bureau Standards & v. United Inc. 91, 95-96, Ct. Cl. Supp. 560, (1958); Hospital 158 F. Central 563-564 Services United States, 77-5646, (WD Assn. v. 40 AFTR 2d 77-5648 Wash. 1977); Community Hospital Services, Inc. v. United 43 AFTR 2d 79-934, (ED 79-939 1979); to 79-940 Supp. 254-255 Mich. (ED 1979) (case Pa. below); Associated v. Com Inc. missioner, 74 T. (Tannenwald, dissenting), C. J., *9 appeal pending, (CA5). No. 80-3596 only of portion distributed operations
profits Ibid. Accordingly, the Serv- profits to its members. those primary for operated was the corporation the ice found that profit or within business carrying on a trade of purpose This Rul- 1939 Code. Revenue of 101 of the meaning the based, the sources it was on which are ing, and the regulation cooperative hospital position that Treasury’s pre-1968 status. tax-exempt not entitled to were in 1958 position this came judicial The first consideration & Inc. Hospital Supplies, Bureau Standards in v. group 91, 158 Supp. F. 560.4 case, Cl. Ct. corpo hospitals nonprofit formed a nonprofit, tax-exempt perform purchasing agent their joint ration act as corporation on their certain behalf. The research functions brought to recover income taxes against suit the Government was to a assessed for 1952 and it entitled alleging pred tax the 1939 Code, present (c)(3). opposed ecessor The Government primarily corporation claimed exemption, arguing was a feeder Regs. 39.101- Treas. 2 (b) (1953). pro The Court of feeder Claims held that the inapplicable corporation vision was in that case because the not organized purpose was primary carrying on a trade for profit required business statute, two though even for the reported had net income years question. Supp., at 95-96, Ct. atCl., corporation 563-564. Accordingly, the court ruled was entitled to a tax exemption (6).5 Court, Stanley Reed, Justice recently then from service on this retired Hospital by designation sat as a member of the in the Court of Claims Bureau case. 5 The nonacquiescence Commissioner expressly never announced Hospital Bureau However, decision. apparent response in an case, respects regulation, feeder (b), 1.502-1 in several amended 1963. also See T. D. 6662, 215-216. See Cum. Bull. Associated supra, Commissioner, Inc. v. at *10 before next years passed important the devel- Almost 1967, In in connection opment this area. with the Social in original 1967, Amendments of the version of 601 Security § 501. The proposed proposed was as an amendment provided cooperative hospital or- amendment exempt from as ganization would be income taxation long among require- as it satisfied certain them requirements, only by perform which, performed ment services if the hospitals themselves, member would an inte- constitute gral part exempt Rep. of their activities. S. No. 744, Security Report Social Amendments of the 1967, Senate on Finance, Committee 90th 1st Cong., Sess., 201-202, 318- (1967). legislative history indicates that within scope services were considered the proposed the Id., The legislative amendment. at 201. history also indi- cates aware Treasury’s was of the belief that such cooperative were not exempt ventures because Id., provision. Code’s feeder at 200-201.6 However, Report Senate noted as well that the in Court Claims Hos- Bureau, pital leading “the in point,” case rejected had Treasury’s position. Rep. S. 744, 201, No. at and n. 1.
The proposed accepted amendment was not the House in original its form. See H. R. Rep. Conf. No. 90th Cong., 1st Sess., (1967). during 1968, (e) in Rather, § 501 heading Under law,” Report “Present the Senate the fol contains lowing statement: “If two or more tax-exempt hospitals join entity together creating perform hospitals, for the the Internal Revenue Service takes position entity that the organization’ constitutes a ‘feeder and is not entitled to income tax special provision of the because of a applicable code organizations. such though This is true even the serv- ice performed, performed hospitals individually, each of the integral be part considered an exempt their spite of this activities. position Service, of the leading entity point case in held fur- such an nishing hospitals services to be Rep. from tax.” at S. No. 200-201. form enacted into law Revenue present legislative 1968.7 Act of Expenditure Control adequate majority opinion,
history set forth in detail ante, opinion of the Court of 6-7, Appeals, at (CA3 1980), 2d does warrant legislative I read it estab repetition history, here.8 As *11 deliberately laundry omitted services lishes that pertinent provides, part: in (e) Section organi- purposes title, organization be as an “For of this an shall treated organized operated exclusively purposes, if— for charitable zation and “(1) organization organized solely— operated such is and “(A) perform, basis, following or on a centralized one more of which, by its performed services if on own behalf which is an (3) organization (c) exempt and from described in subsection taxation perform- (a), exercising in or under subsection would constitute activities purpose exemption: for ing constituting function the basis its data or food, clinical, purchasing, billing collection, processing, warehousing, and center, communications, engineering, laboratory, printing, record industrial per- selection, training, personnel (including testing, and education and services; sonnel) and
“(B) perform each solely hospitals such services or two more is— which (c) exempt
“(i) organization an is described in which subsection (a), taxation under subsection (c) (3) “(ii) organization a constituent of an described subsection orga- which, (a) and from taxation under subsection operated separate organization an entity, nized and as a would constitute (c)(3), or described in subsection
“(iii) by District of operated States, State, owned and the United Columbia, possession States, political or a or a subdivision the United agency instrumentality any foregoing; or or organization “(2) organized basis cooperative such on and pays, of its taxable allocates within after the close months 8% year, earnings patrons performed net all on basis of services them; and
“(3) outstanding capital if such stock, has all of stock such (e). patrons.” U. is owned S. C. §501 Metropolitan also Detroit Inc. v. See Area (CA6 1980). 634 F. 2d clearly joint from 501 intended hospital laun- dries not be entitled to claim an income tax exemption under (e). are § 501 These conclusions reinforced Congress’ re- jection proposed 1976 of a amendment to § 501 (e) would have added services to that subsection’s list ante, eligible services. at 7.
Despite the enactment of § 501 it was not until 1980 that a federal decided that nonprofit court hospital laundries were not entitled to an income tax exemp tion under Between 1968 and 1980, § 501.9 six federal courts Treasury’s rejected the contention that hospital service or ganizations providing other than those listed in § 501 (e) were not entitled to claim an § 501 (3).10 These rejected courts also Treasury’s alternative contention that, if such even entities were not automatically excluded from consideration under (c)(3), they none nonexempt theless were feeder 502 (a) Reg. (b). Treas. 1.502-1 1980, however, three Appeals *12 Courts of concluded (e) provides § 501 the ex- 9 The Service, shortly Internal Revenue (e), after enactment of §501 ruled that 501 did provide exemption an hospital service performed laundry 69-160, services. Rev. Rul. 1969-1 Cum. Bull. 147. The Service laundry also ruled that because among were not those (e), joint hospital laundry listed in 501 could not exemption claim a tax (c)(3). 69-633, Rev. Rul. §501 1969-2 Cum. Bull. 121. 10 Hospital See United Services, States, Inc. v. United Supp. 384 F. 776 (SD 1974); Hospital Ind. Central States, Services Assn. v. United 40 2d (WD AFTR 77-5646 1977); Metropolitan Detroit Hos Area Wash. pital Services, Inc. v. States, United 1978) Supp. (ED ; 445 F. 857 Mich. Northern Services, Central States, United 60, Inc. v. 219 Ct. Cl. California 591 F. 2d Community Hospital (1979); 620 States, Services, Inc. v. United 43 (ED AFTR 2d 79-934 1979); (ED 1979) Supp. Mich. 473 F. 250 Pa. (case below). Chart, States, Inc. See v. United (DC also Supp. 10 491 F. 1979), appeal pending, 80-1138, (CADC), Nos. in which the District Court held qualifies exemption (e) may 501 nonetheless provided by also claim the broader (c)(3). §501 organization may hospital means
elusive relied pri These exemption.11 courts tax an income acquire legislative history cited marily 1968 and 1976 upon first in Circuit, the Third The decision majority. decisions, presently before Appeals series of Court this us.
II
argued,
In
in this
Government
case,
Court
District
occasions, that
had on
because
previous
it
five
as
(e),
deliberately
omitted
laundries
scope of
necessarily
were outside the
they
followed that
also
(ED
1979).
250,
Pa.
(c)(3).
Supp.
instead
rejected
argument, choosing
District
Court
Id.,
line of
align
precedent.
itself
the then-unbroken
with
rejected the Govern
at 253-254.12 The District
also
Court
ap
upon
(a).
On
argument
ment’s alternative
based
F.
argument,
see 624
peal,
Government abandoned this
432,
at
as
2d,
solely upon
(e).
Thus,
n.
and relied
1980)
Hospital
(CA3
(case below);
See 624
Services
2d 428
Central
F.
post,
denied,
p.
States,
(CA9
Assn. v. United
1980),
Correct at upon issue in the language this case should of the stat- focus utory provision actually which creates the exemption. That provision is 501 which states: (a), §
“An organization described in (d) subsection or or (a) section 401 shall be from taxation under this subtitle exemption unless such is denied under section 502 or 503.” (a). § 26 U. S. C. 501 language unambiguous. This is clear and Insofar as relevant case, it provides organizations meeting the re- quirements of 501 (c) (3) § shall be exempt from the federal income tax.14 Such organizations are be denied exemption present Government’s contention that precludes any exemp- tax laundry cooperative even tion for a it is not a feeder 502. The Tax Court observed that services had been inten- tionally (e), omitted but nonetheless went on to consider §501 (a) Reg. (b). and Treas. 1.502-1 inquiry This would have been wholly unnecessary if, as the argues case, hospital Government in this organizations listed in are not entitled to claim an exemption (c)(3). infra, For, explained II-A, Part operates deny to certain otherwise would be entitled (c)(3). under §501 (c) provides, pertinent Section 501 part: following organizations “The are (a): referred to in subsection “(3) Corporations, any community chest, fund, foundation, or- ganized exclusively religious, scientific, charitable, test- ing for.public safety, literary, or purposes, educational or to foster na-
17 Sec- of 502 or 503. §§ provisions the they fall within only if nor 501 (e), § to 501 does § no reference contains (a) tion 501 (e). 501 way by § limited any it that (c)(3) indicate is to of the facts this statutory language plain this Applying is entitled petitioner (e), § 501 but that, clear case, is is (c)(3). 501 (a) and §§501 exemption to a tax requirements of 501§ satisfies petitioner undisputed exempt (a) petitioner Therefore, § (c)(3).15 identi- express exceptions the two one of unless from taxation District Court-found applies. fied in that subsection “for on a was not petitioner inapplicable because finding has This Supp., at 254-255. basis. 473 F. profit” sim- Section 503 is by challenged the Government. not been of language Therefore, plain in this case. ply irrelevant is a tax- petitioner clearly states the relevant statutes organization. statutory language plain majority overrides this the broad charitable exception to construing as an (but only part no competition sports or international amateur tional equipment), facilities or provision of athletic of its activities involve animals, part of the prevention cruelty no children or or for to or any private shareholder earnings of inures to the benefit of net carrying on of which individual, no substantial of the activities (except legislation attempting, propaganda, or influence otherwise to in, participate provided (h)), does not otherwise in subsection and which statements), distributing (including publishing or intervene any office.” any political campaign public on behalf of candidate (c)(3). C. U. S. §501 (e) controlled rejecting After Government’s contention organi case, petitioner the District Court found is a charitable Al meaning (c)(3). Supp., at zation within the Appeals did though decision, it reversed the Court District Court’s finding. petitioner not disturb this Rather, it concluded that exemption attempt qualify even entitled for an income coop (c) (3), (e) exclusively governs because 501 tax status con Appeals organizations. Thus, erative the Court provided inquiry ended once sidered it was established that (e). not listed (a) (c)(3). and 501 §§ created Construed operates deny a tax manner, in this *15 satisfy express that otherwise organizations statutory re- exemption. 501 quirements (e) exception § itself, than express: identifying is not rather however, particular nonexempt, (e) 501 particular § as identifies organizations or- exempt and, apparently by ganizations implication, as denies organizations the exemption all similar unlisted but otherwise (a) (c)(3). 501 and 501 §§ available silently The Court dismisses the fact that (a) 501 §§ (c) (3) indicating 501 contain no reference (e) § that 501 is limiting to effect; necessary have this connection be- supplied tween the is statutes instead the Court’s finding (e) “closely that 501 is “interrelated” with and positioned” § (3). Ante, (c) at 6. cannot be § denied that 501§ (e) position (c)(3). is close in 501§ But a statute’s text surely significant physical than its location.16 And to majority as the state, does, (c) (3) (e) §§ are “interrelated” is to substitute analysis. Apart conclusion for proximity from their to one another, only express relation- ship between these statutes is that certain described entities in 501 (e) § are to be organizations treated charitable (c) (3) purposes. Nothing any federal income tax in of the relevant suggests statutes is to have (e) effect of denying satisfy exemption organizations an requirements (c)(3). Congress When wanted difficulty statute to such making have an its it had no effect, (a)’s intention unmistakably 501§ as is evident from plain, reference to em- §§ language and 503. The clearly Congress, wholly If in separate Code, had of the Tax section stated that all organizations except specifically those enumerated shall be denied exemption, income tax the Court give decline to merely that statute effect because it was not Similarly, take position case it cannot this seems to me that ’s place congressional organizations of a be denied declaration that certain exemption. intention to not to re- enlarge, reflects in 501§
ployed entitled category duce, (c) (3).17 B of 501 with a dis- interpretation supports Court However, this discussion makes history. legislative cussion statutory provi- history of the legislative to the reference no (a) and 501 case, §§ this at issue primarily sions history upon legislative focuses the Court (3). Instead, upon Court relies insofar as the my opinion, (e). of § 501 sequitur. non upon a its decision rests legislative history, history 501(e), legislative the text Because the Court 1968, persuade enacted section, the Court under that to an not entitled *16 exemp- to claim is not entitled also petitioner concludes that Unless enacted in 1954.18 (c) which was (3), tion under 501§ the statute, the scope of earlier limited the the later statute supported by premise. the is not conclusion support the (e) might of 501 legislative history § that Con- unambiguously (1) it revealed: position Court’s cooperative hospital no gress in 1968 believed that (3) of 501§ satisfy requirements could the exemption (e) to extend a tax it therefore enacted exemption; to previously entities not entitled to certain cooperative (2) that 1968 believed that 17 (e) was Indeed, specifically that 501 several courts have concluded § eligible organizations expand, contract, category intended not to of (c)(3). See, g., exemption for under e. Northern §501 California 2d, at Services, States, Cl., Central Inc. 591 F. v. United at Ct. Hospital Services, 624; 253; Metropolitan Supp., at Detroit Area F. Hospital Inc. States, 860; Inc. United Supp., v. 445 F. at Supp., v. United at 781. (c) (3) Internal fact, predecessor had as its § text, analysis in the However, purposes of Revenue Code for is sufficient precise point (c)(3) unimportant; origin §501 (e). (c)(3) was enacted well before §501 §501 arguably were at least entitled to tax (c) (3) and it enacted exemption exemption some, all, but these withdraw history provides persuasive support legislative entities. proposition. for neither (e) unambiguously granted
In my opinion, a tax ex- arguably already entities emption certain were en- exemption (c)(3). There titled to an is ab- solutely no evidence that was intended to statute already any benefits that were available under withdraw Proper analysis, 1954 Act. should on the therefore, focus whether would have been to an question entitled pre-1968 law. organiza The 1954 Act created a broad category tions, corporations “operated exclusively including for . .. purposes.” hospitals charitable . . qualify . That could always question has been clear. The whether cooperative organization tax-exempt formed group hospitals provide hospitals could also qual ify for exemption less I, was clear. As discussed Part supra, prior to Treasury 1968 the took position such a cooperative was a “feeder organization” within mean ing of 502 of the Code.19 This was re however, position, jected by the Court of quite properly my Claims which — opinion such a was not a “feeder” and —held exempt under what (c)(3). now 501 *17 Bureau Standards & Supplies, Inc. v. 91,
Ct. Cl.
Section If such organizations.23 religious educational tive exempt under 501 have been previously organizations construed to have withdrawn Act be the 1968 should (e)(3), fit of the fact saw by exemption reason “coop- amendment to clarifying of its the benefit confine I think answer organizations”? hospital service erative apply should to a the same answer clear and that 1968 Act. expressly is not covered cooperative that on the basis of the remain- Its tax status should be evaluated of the Internal Revenue Code. ing provisions relevant response 502', congressional to the series of “destination was the which culminating involving famous the New York of income” cases in the case University factory, of Law’s noodle C. F. Mueller Co. v. Commis- School (CA3 sioner, 1951), precisely organizations 190 F. 2d was directed at tax-exempt Thus, organi- which funneled their net income to institutions. might reasonably organiza^ zations which otherwise be feeder considered (e). exemption However, tions are entitled no under there is §501 why cooperative organization operates nonprofit reason basis on a earnings members, not funnel does back such as the case, qualify exemption in this cannot for an under income tax (c)(3). organization, deprived (e), Such an of the shield of should §501 challenge nonetheless be tax if it can avoid as a feeder on its own merits. The conclusion or- designed for certain shield ganizations nonexempt that otherwise is also would be considered feeders
supported (e) is exemption the fact available (c)(3). restrictive than that District available under As the Chart, (DC 1979), appeal Court Inc. v. United Supp. F. pending, 80-1138, Nos. (CADC), observed, organizations qualify (c) (3) operate with a are able to great flexibility Id., (e). deal more qualifying than at those Congress may 13-14. designed provide well have a limited form of tax previously nonexempt organizations. feeder (f) op Section 501 “Cooperative organizations is entitled erating (e). organizations,” educational analogous but is not to §501 (f) Section 501 concerns organized to invest funds resulting on behalf of educational in pay institutions and to come to these institutions. *19 recognize attempts
I in 1968 and were that both (e) exemption explicit encompass made extend laundry cooperatives attempts and that these were history proves nothing rejected. legislative This more than in the statute itself: already stated plainly what is petitioner. That equally is not available to organization. educational service But true any by Congress intent that fact not evidence to with- does be organi- available to such draw whatever of the Code. provisions zations under other the conclusion logic compel Nor does in- pre-existing exemption. tended to withdraw As a matter I provides any of tax have read policy, nothing obvious giving hospital legitimate basis service favorable treatment than other charitable organiza- service tions, organiza- or for a data food giving processing tion better than a organization. treatment I accept reasoning cannot the kind of Furthermore, —which unfortunately may summary characterize our dispositions— interprets plainly a statute that was intended noth- do ing more than extend a certain benefit to taxpayers some though it were intended withdraw a benefit otherwise avail- to other taxpayers. able
I respectfully dissent.