MEMORANDUM AND ORDER
TROUTMAN, District Judge.
Plaintiff Hospital Central Services, Inc. is claiming a refund for federal income taxes paid for plaintiff's fiscal year ending June 30, 1976, in the amount of $10,395.00. Plaintiff is a nonprofit corporation under Pennsylvania law and its sole activity is providing laundry and linen services to fifteen member nonprofit hospitals in southeastern Pennsylvania and to a nonprofit volunteer ambulance service. The issue is whether plaintiff, in furnishing this service, is exempt from taxation under Section 501(a) of the Internal Revenue Code of 1954, 26 U.S.C. § 501(a) as an organization described in 26 U.S.C. § 501(c)(3).
Both sides have moved for summary judgment. The following facts have been stipulated. Plaintiff was incorporated on January 3, 1967, as a nonprofit corporation under the Pennsylvania Nonprofit Corporation Law, adopted May 5, 1933. (Stipulation of Facts, ¶ 1.) Its principal office is located at 2171 28th Street, S.W., Allentown, Pennsylvania. (¶ 2). Plaintiff's purpose is set forth in paragraph 4 of the Articles of Incorporation as amended May 29, 1970:
Plaintiff provides laundry and linen services to fifteen nonprofit hospitals located in the Greater Lehigh Valley, Reading, Scranton and suburban Philadelphia, Pennsylvania, areas, and to the Cetronia Ambulance Corps serving the Village of Cetronia, Pennsylvania. All of the hospitals served and the ambulance corps have received federal income tax exemptions under Section 501(c)(3) of the Internal Revenue Code. (¶ 9.) In order to discharge its purposes, a hospital requires reliable and quality laundry and linen services. (§ 10.)
Other stipulations state that plaintiff constructed its plant to serve hospitals, some of which had in-plant facilities (¶ 19); that plaintiff meets sanitary and quality standards for hospital linens (¶ 21); the Lehigh Valley Hospital and Health Planning Council (the Council) concluded that plaintiff's shared approach to laundry service allows for more economical processing than in-plant processing (¶ 16) and the Council concluded that better quality service would be supplied in this fashion (¶ 25); all funds paid by member hospitals in excess of cost are placed in a fund for acquisition and replacement of equipment (¶ 27); plaintiff has never made a distribution of money or property nor have any net earnings inured to the benefit of any member or individual (¶ 29).
The Government contends that plaintiff is not an exempt organization for two reasons. First, it is not a cooperative hospital service as defined in § 501(e), and because the Congress specifically intended to leave shared laundry service out of § 501(e), it follows that plaintiff is also not exempt under § 501(c)(3).
Both of these contentions have been rejected by every Court that has ever considered them. See United Hospital Services, Inc. v. United States, 384 F.Supp. 776 (D.Ind.1974); Metropolitan Detroit Area Hospital Services, Inc. v. United States, 445 F.Supp. 857 (E.D.Mich.1978); Northern California Central Services, Inc. v. United States, 591 F.2d 620 (Ct.Claims, 1979); Community Hospital Services, Inc. v. United States, 43 AFTR 2d 79-931 (E.D.Mich. 1979); Hospital Central Services Association v. United States, 40 AFTR 2d 77-5642 (W.D.Wash.1977).
Likewise, the Court of Claims, in considering this issue in Northern California Central Services, Inc. v. United States, supra,
There is no inherent contradiction in holding that shared laundry service may be exempt from tax under § 501(c)(3) even though such service was explicitly denied an exemption under § 501(e). In declining to include shared laundry service within the express exemption provisions of § 501(e) Congress was merely declining to become embroiled in a very sensitive issue. As the Court of Claims noted, commercial laundries were vehemently opposed to such tax exemption, and faced with such a heated controversy, it appears that the Congress, deciding it was not at that time sufficiently informed to decide the issue, left such a matter to the courts, by leaving such services out of § 501(e), yet leaving § 501(c)(3) unaffected.
Having decided that the absence of an express § 501(e) exemption does not automatically bar exemption under § 501(c)(3), we must decide if exemption under § 501(c)(3) is proper. We conclude that plaintiff is a charitable organization. Membership in plaintiff's organization is limited to public or non-profit hospitals, which hospitals themselves are charitable organizations. Net earnings by plaintiff, in excess of costs and funds for necessary reserves, are allocated to member hospitals in proportion to respective quantity or value of business done with each member hospital for the year giving rise to such earnings. (Stipulation Exhibit A, By-Laws, Article XI, Section 1.) It is undisputable that a hospital cannot discharge its purposes without reliable and quality laundry and linen services, which service must meet standards particular to hospital situations. Therefore, plaintiff undisputedly performs an integral and necessary function of charitable organizations, and we conclude that plaintiff is a charitable organization. This conclusion is consistent with the unanimous decisions of the courts that have considered this issue. See United Hospital Services, Inc. v. United States, supra; Metropolitan Detroit Area Hospital Services, Inc. v. United States, supra; Northern California Central Services, Inc. v. United States, supra; Community Hospital Services, Inc. v. United States, supra; Hospital Central Services Association v. United States, supra.
The Government has also contended that plaintiff is a "feeder" organization, and is not entitled to a charitable exemption because of the provisions of § 502(a). However, we conclude that the provision does not apply. That provision applies only to a profit-making enterprise which pays its profits to one or more charitable organizations. In this case, plaintiff is not a profit-making enterprise at all, but a non-profit enterprise wholly controlled by charitable organizations "in order to effect economies in their own operations". See United Hospital Services, Inc. v. United States, supra, at p. 782. Also, the applicable Treasury Regulation on Income Tax, 26 C.F.R. § 1.502-1, Feeder Organizations, provides as follows in pertinent part:
In this case, the purpose of the plaintiff is an integral part of the exempt activities of the parent organization—laundry is an integral part of the functions of a hospital. Thus, we conclude that plaintiff is not a feeder organization and is, therefore, entitled to exemption.
In conclusion, we find that plaintiff is not barred from exemption because its activities were not expressly exempted from taxation under § 501(e), that plaintiff is an exempt organization under § 501(c)(3) and that the provisions of § 502(a) do not apply to plaintiff. Accordingly, we will grant plaintiff's motion for summary judgment, and deny defendant's motion for summary judgment. Our findings, conclusions and the result thus reached are consistent with the concern and the desires of the Government to curb rising hospital costs. A different result would directly affect such costs to the detriment of the elderly and others dependent upon continued hospital services.
§ 502. Feeder organizations
(a) General rule.—An organization operated for the primary purpose of carrying on a trade or business for profit shall not be exempt from taxation under section 501 on the ground that all of its profits are payable to one or more organizations exempt from taxation under section 501.