PER CURIAM.
Petitioner HCSC-Laundry is a Pennsylvania nonprofit corporation. It was organized in 1967 under the law of that Commonwealth "[t]o operate and maintain a hospital laundry and linen supply program for those public hospitals and non-profit hospitals or related health facilities organized and
Petitioner provides laundry and linen service to 15 nonprofit hospitals and to an ambulance service. All these are located in eastern Pennsylvania. Each organization served possesses a certificate of exemption from federal income taxation under § 501 (c) (3) of the Internal Revenue Code of 1954, 26 U. S. C. § 501 (c) (3).
No part of petitioner's net earnings inures to the benefit of any individual.
Petitioner was formed after the Lehigh Valley Health Planning Council determined that a shared, nonprofit, off-premises laundry would best accommodate the requirements of the member hospitals with respect to both quality of service and economies of scale. The Council had investigated various alternatives. It had rejected a joint service concept because no member hospital had sufficient laundry facilities to serve more than itself. A commercial laundry had declined an offer for the laundry business of all the hospitals, and most of the other available commercial laundries were not capable of managing the heavy total volume.
Petitioner's laundry plant was built and equipped at a cost of about $2 million. This was financed through loans from local banks, with 15-year contracts from 10 of the hospitals used as collateral. Petitioner employs approximately 125 persons.
In 1976, petitioner applied for exemption under § 501 (c) (3) from federal income taxation. The Internal Revenue Service denied the exemption application on the grounds that § 501 (e)
Petitioner duly filed its federal corporate income tax return for its fiscal year ended June 30, 1976. that return showed taxable income of $123,521 and a tax of $10,395. The tax was paid. Shortly thereafter, petitioner filed a claim for refund of that tax and, when the Internal Revenue Service took no action on the claim within six months, see 26 U. S. C. § 6532 (a) (1), petitioner commenced this refund suit in the United States District Court for the Eastern District of Pennsylvania.
On stipulated facts and cross-motions for summary judgment, the District Court ruled in favor of petitioner, holding that it was entitled to exemption as an organization described in § 501 (c) (3). 473 F.Supp. 250 (1979). The United States Court of Appeals for the Third Circuit, however, reversed. It held that § 501 (e) was the exclusive provision under which a cooperative hospital service organization could obtain an income tax exemption, and that the omission of laundry services from § 501 (e) (1) (A)'s specific list of activities demonstrated that Congress intended to deny exempt status to cooperative hospital service laundries. 624 F.2d 428 (1980).
This Court has said: "The starting point in the determination of the scope of `gross income' is the cardinal principle that Congress in creating the income tax intended `to use the full measure of its taxing power.'" Commissioner v. Kowalski, 434 U.S. 77, 82 (1977), quoting from Helvering v. Cliford, 309 U.S. 331, 334 (1940). See § 61 (a) of the Code, 26 U. S. C. § 61 (a). Under our system of federal income taxation, therefore, every element of gross income of a person, corporate or individual, is subject to tax unless there is a statute or some rule of law that exempts that person or element.
Sections 501 (a) and (c) (3) provide such an exemption, and a complete one, for a corporation fitting the description set forth in subsection (c) (3) and fulfilling the subsection's requirements. But subsection (e) is also a part of § 501. And it expressly concerns the tax status of a cooperative hospital service organization. It provides that such an organization is exempt if, among other things, its activities consist of "data processing, purchasing, warehousing, billing and collection, food, clinical, industrial engineering, laboratory, printing, communications, record center, and personnel (including selection, testing, training, and education of personnel) services." Laundry and linen service, so essential to a hospital's operation,
Without reference to the legislative history, the Government would appear to have the benefit of this skirmish, for it is a basic principle of statutory construction that a specific statute, here subsection (e), controls over a general provision such as subsection (c) (3), particularly when the two are interrelated and closely positioned, both in fact being parts of § 501 relating to exemption of organization from tax. See Bulova Watch Co. v. United States, 365 U.S. 753, 761 (1961).
Additionally, however, the legislative history provides strong and conclusive support for the Government's position. It persuades us that Congress intended subsection (e) to be exclusive and controlling for cooperative hospital service organizations. Prior to the enactment of subsection (e) in 1968, the law as to the tax status of shared hospital service organizations was uncertain. The Internal Revenue Service took the position that if two or more tax-exempt hospitals created an entity to perform commercial services for them, that entity was not entitled to exemption. See Rev. Rul. 54-305, 1954-2 Cum. Bull. 127.
In considering the provisions of the tax adjustment bill of 1968 that ultimately became subsection (e), the Senate sought to include laundry in the list of services that a cooperative hospital service organization could provide and still maintain its tax-exempt status. The Treasury Department supported the Senate amendment. See 114 Cong. Rec. 7516, 8111-8112 (1968). At the urging of commercial interests, however (see Hearings on Certain Committee Amendments to H. R. 10612 before the Senate Committee on Finance, 94th Cong., 2d Sess., 608 (1976)), the Conference Committee would accept only a limited version of the Senate amendment. In recommending the adoption of subsection (e), the managers on the part of the House emphasized that shared hospital service organizations performing laundry services were not entitled to tax-exempt status under the new provision. See H. R. Conf. Rep. No. 1533, 90th Cong., 2d Sess., 43 (1968); Senate Committee on Finance and House Committee on Ways and Means, Revenue and Expenditure Control Act of 1968, Explanation of the Bill H. R. 15414, 90th Cong., 2d Sess., 1, 20 (Comm. Print 1968).
Later, in 1976, at the urging of the American Hospital Association, the Senate Committee on Finance proposed an amendment that would have added laundry to the list of services specified in subsection (e) (1) (A). Hearings on H. R. 10612 before the Senate Committee on Finance, 94th Cong., 2d Sess., 2765-2772 (1976); S. Rep. No. 94-938, pt. 2, pp. 76-77 (1976). The amendment, however, was defeated on the floor of the Senate. 122 Cong. Rec. 25915 (1976).
The judgment of the Court of Appeals is affirmed.
It is so ordered.
JUSTICE WHITE dissents and would set the case for plenary consideration.
JUSTICE STEVENS, dissenting.
Today the Court summarily decides that § 501, read in light of the legislative history of § 501 (e), requires that nonprofit cooperative hospital laundries be denied an exemption from federal income tax, even though they may satisfy the requirements of §§ 501 (a) and 501 (c) (3). In my opinion, the Court's summary disposition is ill-advised because a full understanding of the question presented in this case requires an examination of the history underlying the present state of the law with respect to the tax status of cooperative hospital
I
In 1950, Congress amended § 101 of the Internal Revenue Code of 1939 by adding to that section a paragraph dealing with so-called "feeder organizations." Revenue Act of 1950, § 301 (b), Pub. L. 814, ch. 994, 64 Stat. 953. This paragraph was subsequently reenacted without substantial change as § 502 (a) of the Internal Revenue Code of 1954.
The Internal Revenue Service first applied this regulation to cooperative hospital service organizations in a 1954 Revenue Ruling, Rev. Rul. 54-305, 1954-2 Cum. Bull. 127. In that Ruling, the Service held that a corporation organized and operated for the primary purpose of operating and maintaining a purchasing agency for the benefit of its members—tax-exempt hospitals and other charitable institutions—fell within the feeder regulation and thus was not entitled to an income tax exemption. The corporation at issue realized substantial
The first judicial consideration of this position came in 1958 in Hospital Bureau of Standards & Supplies, Inc. v. United States, 141 Ct. Cl. 91, 158 F.Supp. 560.
The proposed amendment was not accepted by the House in its original form. See H. R. Conf. Rep. No. 1030, 90th Cong., 1st Sess., 73 (1967). Rather, during 1968, § 501 (e) in
Despite the enactment of § 501 (e) in 1968, it was not until 1980 that a federal court decided that nonprofit cooperative hospital laundries were not entitled to an income tax exemption under § 501.
II
In the District Court in this case, the Government argued, as it had on five previous occasions, that because Congress deliberately omitted hospital laundries from § 501 (e), it necessarily followed that they also were outside the scope of § 501 (c) (3). See 473 F.Supp. 250, 252 (ED Pa. 1979). The District Court rejected this argument, choosing instead to align itself with the then-unbroken line of precedent. Id., at 253-254.
A
Correct analysis of the income tax exemption provisions at issue in this case should focus upon the language of the statutory provision which actually creates the exemption. That provision is § 501 (a), which states:
This language is clear and unambiguous. Insofar as relevant in this case, it provides that organizations meeting the requirements of § 501 (c) (3) shall be exempt from the federal income tax.
Applying this plain statutory language to the facts of this case, it is clear that, but for § 501 (e), petitioner is entitled to a tax exemption under §§ 501 (a) and 501 (c) (3). It is undisputed that petitioner satisfies the requirements of § 501 (c) (3).
The majority overrides this plain statutory language by construing § 501 (e) as an exception to the broad charitable
The Court silently dismisses the fact that §§ 501 (a) and 501 (c) (3) contain no reference indicating that § 501 (e) is to have this limiting effect; the necessary connection between the statutes is supplied instead by the Court's finding that § 501 (e) is "interrelated" with and "closely positioned" to § 501 (c) (3). Ante, at 6. It cannot be denied that § 501 (e) is close in position to § 501 (c) (3). But a statute's text is surely more significant than its physical location.
B
The Court supports its interpretation of § 501 with a discussion of legislative history. However, this discussion makes no reference to the legislative history of the statutory provisions primarily at issue in this case, §§ 501 (a) and 501 (c) (3). Instead, the Court focuses upon the legislative history of § 501 (e). In my opinion, insofar as the Court relies upon this legislative history, its decision rests upon a non sequitur. Because the text and legislative history of § 501 (e), which was enacted in 1968, persuade the Court that petitioner is not entitled to an exemption under that section, the Court concludes that petitioner also is not entitled to claim exemption under § 501 (c) (3), which was enacted in 1954.
The legislative history of § 501 (e) might support the Court's position if it unambiguously revealed: (1) that Congress in 1968 believed that no cooperative hospital service organization could satisfy the requirements of § 501 (c) (3) and it therefore enacted § 501 (e) to extend a tax exemption to certain entities previously not entitled to exemption; or (2) that Congress in 1968 believed that cooperative hospital
In my opinion, § 501 (e) unambiguously granted a tax exemption to certain entities that arguably already were entitled to an exemption under § 501 (c) (3). There is absolutely no evidence that the 1968 statute was intended to withdraw any benefits that were already available under the 1954 Act. Proper analysis, therefore, should focus on the question whether petitioner would have been entitled to an exemption under pre-1968 law.
The 1954 Act created a broad category of exempt organizations, including corporations "operated exclusively for . . . charitable . . . purposes." That hospitals could qualify for exemption has always been clear. The question whether a cooperative organization formed by a group of tax-exempt hospitals to provide services for the hospitals could also qualify for exemption was less clear. As discussed in Part I, supra, prior to 1968 the Treasury took the position that such a cooperative was a "feeder organization" within the meaning of § 502 of the Code.
As a matter of history—presumably because cooperative service organizations were fairly common in the hospital industry
Nor does logic compel the conclusion that Congress intended to withdraw a pre-existing exemption. As a matter of tax policy, nothing that I have read provides any obvious legitimate basis for giving hospital service organizations more favorable treatment than other charitable service organizations, or for giving a data processing or food service organization better treatment than a laundry service organization. Furthermore, I cannot accept the kind of reasoning—which unfortunately may characterize our summary dispositions— that interprets a statute that was plainly intended to do nothing more than extend a certain benefit to some taxpayers as though it were intended to withdraw a benefit otherwise available to other taxpayers.
I respectfully dissent.
FootNotes
"(a) Exemption from taxation
"An organization described in subsection (c) or (d) or section 401 (a) shall be exempt from taxation under this subtitle unless such exemption is denied under section 502 or 503.
.....
"(c) List of exempt organizations
"The following organizations are referred to in subsection (a):
.....
"(3) Corporations, and any community chest, fund, or foundation, organized and operated exclusively for religious, charitable, scientific, testing for public safety, literary, or educational purposes, or to foster national or international amateur sports competition (but only if no part of its activities involve the provision of athletic facilities or equipment), or for the prevention of cruelty to children or animals, no part of the net earnings of which inures to the benefit of any private shareholder or individual, no substantial part of the activities of which is carrying on propaganda, or otherwise attempting, to influence legislation (except as otherwise provided in subsection (h)), and which does not participate in, or intervene in (including the publishing or distributing of statements), any political campaign on behalf of any candidate for public office."
"(e) Cooperative hospital service organizations
"For purposes of this title, an organization shall be treated as an organization organized and operated exclusively for charitable purposes,if—
"(1) such organization is organized and operated solely—
"(A) to perform, on a centralized basis, one or more of the following services which, if performed on its own behalf by a hospital which is an organization described in subsection (c) (3) and exempt from taxation under subsection (a), would constitute activities in exercising or performing the purpose or function constituting the basis for its exemption: data processing, purchasing, warehousing, billing and collection, food, clinical, industrial engineering, laboratory, printing, communication, record center, and personnel (including selection, testing, training, and education of personnel) services; and
"(B) to perform such services solely for two or more hospitals each of which is—
"(i) an organization described in subsection (c) (3) which is exempt from taxation under subsection (a),
"(ii) a constituent part of an organization described in subsection (c) (3) which is exempt from taxation under subsection (a) and which, if organized and operated as a separate entity, would constitute an organization described in subsection (c) (3), or
"(iii) owned and operated by the United States, a State, the District of Columbia, or a possession of the United States, or a political subdivision or an agency or instrumentality of any of the foregoing."
Decisions in accord with the ruling of the Third Circuit include Hospital Central Services Assn. v. United States, 623 F.2d 611 (CA9 1980), cert. denied, post, p. 911, and Metropolitan Detroit Area Hospital Services, Inc. v. United States, 634 F.2d 330 (CA6 1980). See also Associated Hospital Services, Inc. v. Commissioner, 74 T.C. 213, 231 (1980) (reviewed by the court, with four dissents; appeal pending, No. 80-3596 (CA5)).
"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." 26 U. S. C. § 502 (a).
"If a subsidiary organization of a tax-exempt organization would itself be exempt on the ground that its activities are an integral part of the exempt activities of the parent organization, its exemption will not be lost because, as a matter of accounting between the two organizations, the subsidiary derives a profit from its dealings with its parent organization, for example, a subsidiary organization which is operated for the sole purpose of furnishing electric power used by its parent organization, a tax-exempt educational organization, in carrying on its educational activities. However, the subsidiary organization is not exempt from tax if it is operated for the primary purpose of carrying on a trade or business which would be an unrelated trade or business (that is, unrelated to exempt activities) if regularly carried on by the parent organization. For example, if a subsidiary organization is operated primarily for the purpose of furnishing electric power to consumers other than its parent organization (and the parent's tax-exempt subsidiary organization), it is not exempt since such business would be an unrelated trade or business if regularly carried on by the parent organization. Similarly, if the organization is owned by several unrelated exempt organizations, and is operated for the purpose of furnishing electric power to each of them, it is not exempt since such business would be an unrelated trade or business if regularly carried on by any one of the tax-exempt organizations."
"If two or more tax-exempt hospitals join together in creating an entity to perform services for the hospitals, the Internal Revenue Service takes the position that the entity constitutes a `feeder organization' and is not entitled to income tax exemption because of a special provision of the code applicable to such organizations. This is true even though the service performed, if performed by each of the hospitals individually, would be considered an integral part of their exempt activities. In spite of this position of the Service, the leading case in point held such an entity furnishing services to hospitals to be exempt from tax." S. Rep. No. 744, at 200-201.
"For purposes of this title, an organization shall be treated as an organization organized and operated exclusively for charitable purposes, if—
"(1) such organization is organized and operated solely—
"(A) to perform, on a centralized basis, one or more of the following services which, if performed on its own behalf by a hospital which is an organization described in subsection (c) (3) and exempt from taxation under subsection (a), would constitute activities in exercising or performing the purpose or function constituting the basis for its exemption: data processing, purchasing, warehousing, billing and collection, food, clinical, industrial engineering, laboratory, printing, communications, record center, and personnel (including selection, testing, training and education of personnel) services; and
"(B) to perform such services solely for two or more hospitals each of which is—
"(i) an organization described in subsection (c) (3) which is exempt from taxation under subsection (a),
"(ii) a constituent part of an organization described in subsection (c) (3) which is exempt from taxation under subsection (a) and which, if organized and operated as a separate entity, would constitute an organization described in subsection (c) (3), or
"(iii) owned and operated by the United States, a State, the District of Columbia, or a possession of the United States, or a political subdivision or an agency or instrumentality of any of the foregoing;
"(2) such organization is organized and operated on a cooperative basis and allocates or pays, within 81/2 months after the close of its taxable year, all net earnings to patrons on the basis of services performed for them; and
"(3) if such organization has capital stock, all of such stock outstanding is owned by its patrons." 26 U. S. C. § 501 (e).
In Associated Hospital Services, Inc. v. Commissioner, 74 T.C. 213 (1980), appeal pending, No. 80-3596 (CA5), a sharply divided Tax Court held that a nonprofit cooperative hospital laundry was not entitled to tax exemption under § 501, because of the feeder regulation, Treas. Reg. § 1.502-1 (b). However, as explained in note 13, infra, the Tax Court's reasoning is in conflict with that in the above-cited cases and, in fact, supports the position of the petitioner in the instant case.
"The following organizations are referred to in subsection (a):
.....
"(3) Corporations, and any community chest, fund, or foundation, organized and operated exclusively for religious, charitable, scientific, testing for public safety, literary, or educational purposes, or to foster national or international amateur sports competition (but only if no part of its activities involve the provision of athletic facilities or equipment), or for the prevention of cruelty to children or animals, no part of the net earnings of which inures to the benefit of any private shareholder or individual, no substantial part of the activities of which is carrying on propaganda, or otherwise attempting, to influence legislation (except as otherwise provided in subsection (h)), and which does not participate in, or intervene in (including the publishing or distributing of statements), any political campaign on behalf of any candidate for public office." 26 U. S. C. § 501 (c) (3).
The conclusion that § 501 (e) was designed as a shield for certain organizations that otherwise would be considered nonexempt feeders is also supported by the fact that the exemption available under § 501 (e) is more restrictive than that available under § 501 (c) (3). As the District Court in Chart, Inc. v. United States, 491 F.Supp. 10 (DC 1979), appeal pending, Nos. 80-1138, 80-1139 (CADC), observed, organizations which qualify for tax exemption under § 501 (c) (3) are able to operate with a great deal more flexibility than those qualifying under § 501 (e). Id., at 13-14. Congress may well have designed § 501 (e) to provide a limited form of tax exemption for previously nonexempt feeder organizations.
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