Vulcan Blazers of Baltimore City, Inc. v. Comptroller of the Treasury

WILNER, Judge. The substantive issue in this appeal is whether appellant, an incorporated association of firefighters in Baltimore City known as the Vulcan Blazers, is exempt from Maryland’s Admissions and Amusement Tax. More particularly, we are called upon to determine whether, in concluding that the appellant organization is not exempt, the Circuit Court for Baltimore City improperly substituted its judgment for that of the Maryland Tax Court. Appellant was initially formed as an entity in 1970 and was incorporated in 1971.

It is affiliated with the International Association of Black Professional Firefighters, serving as the Baltimore City chapter of that Association. Patterning itself after fraternal organizations such as the Elks and the Knights of Columbus, the organization raises funds through membership dues and through the operation of an entertainment hall in West Baltimore. The hall is used mostly by members of the association and their guests, but it is also rented out to other groups. The hall features a cash bar with television, music, and dancing.

Two nights a week a disc jockey is hired and admission is ³⁷⁹ charged. The hall serves as a base for all of appellant’s operations. During the period at issue here, Md.Ann.Code art. 81, § 402(b) 1 authorized Baltimore City and other incorporated municipalities to levy a tax “on the gross receipts of every person ... obtained from sources within the [City] derived from the amounts charged for (1) admission to any place, whether the admission be by single ticket, season ticket or subscription, including a cover charge for seats or tables at any roof garden, cabaret or other similar place where there is furnished a performance when payment of the amounts entitles the patron thereof to be present during any portion of the performance; [or] ... (4) refreshment, service or merchandise at any roof garden, cabaret or other similar place where there is furnished a performance.

The term ‘roof garden or other similar place’ shall include any room in any hotel, restaurant, hall or other place where music or dancing privileges or other entertainment, except mechanical music, radio or television, alone, and where no dancing is permitted, are afforded the members, guests or patrons in connection with the serving or selling of food, refreshment, or merchandise.” The tax levied under § 402(b) is to be collected by the State Comptroller. Appellant had been paying admission and amusement taxes, pursuant to § 402(b), on receipts from the operation of its hall. In 1985, however, the Comptroller’s office audited the organization for the period from November 1, 1980 through September 30, 1984 and assessed the orga ³⁸⁰ nization for underpayment. 2 Thereafter, in addition to contesting the assessment, appellant filed a claim for a refund of the admissions and amusement taxes it had previously paid. It claimed to be exempt from the Admissions and Amusement Tax pursuant to Md.Ann.Code art. 81, § 406, 3 which stated: “No tax shall be levied or collected under the provisions of § 402 of this article: (1) Upon the gross receipts derived from the amounts charged for admissions or refreshments, service and merchandise when such gross receipts are devoted exclusively to charitable, religious or educational purposes____” 4 (Emphasis added.) See also Md.Regs.Code tit. 03, § 01.01.07.

The organization commingled its receipts from dues and from operations and rental of the hall. As dues and rental receipts are not receipts from admissions or from refreshments, service, and merchandise, they ordinarily would not be considered in determining if expenditures of receipts from admissions and amusement “are devoted exclusively to charitable, religious, or educational purposes.” The parties seem to agree, however, that as expenditures from receipts derived from the operations of the hall cannot be separated from expenditures from receipts derived from dues and rentals, all expenditures must be considered in resolving that issue. ³⁸¹ Appellant was organized, as stated in the purpose clause of its articles of incorporation, “[t]o promote understanding, friendship and cooperation among all members of the Fire Department of the City of Baltimore; to promote various types of athletics and sports, social and cultural affairs to the end that the physical and mental stature of the members might be improved; to cooperate with national and local organizations in programs of education and instruction in order to help reduce loss of life and property due to fire; to encourage the members to thoroughly familiarize themselves with the rules and regulations of the Baltimore City Fire Department so that these members will be better able to serve their city.” It is undisputed, and has been from the start, that the great bulk of appellant’s total receipts are used to operate the entertainment hall. The next greatest expenditure is for other benefits to members and their families, such as annual picnics, monthly birthday parties, awards ceremonies, transportation to political rallies and athletic events, uniforms for athletic events, membership pins, and flowers, gifts, and monetary contributions for sick or deceased members. Funds also are spent on educational and community awareness programs regarding firefighting and discrimination.

To a much lesser extent, the organization makes contributions to political campaigns and charities. 5 Because most of appellant’s receipts are used to benefit the members, the Comptroller denied the request for a refund, concluding that the organization “failed to demonstrate even marginally that its income is devoted exclusive ³⁸² ly to charitable and educational purposes.” See Supervisor v. Trs. Bosley Meth. Ch., 293 Md. 208, 215 , 443 A.2d 91 (1982); Ballard v. Supervisor of Assess., 269 Md. 397, 404 , 306 A.2d 506 (1973) (explaining that a use will be found to be exclusively for a particular purpose if it is primarily or substantially for that purpose). The organization appealed the Comptroller’s decision to the Tax Court, which reversed.

While agreeing that appellant’s receipts were used primarily to benefit the members, the Tax Court explained: “If one accepts the proposition that encouraging upward mobility of black fire fighters and maintaining good health and high morale for all fire fighters are desirable goals benefiting the entire community, then Petitioner’s position is persuasive. Fire fighting is different from other occupations in a number of ways. It requires round-the-clock 365 days a year coverage. Therefore, parties for members which allow families to participate are important to maintaining the morale of those on duty.

Fire fighting requires excellent physical health, which is enhanced by athletic activities. Upward mobility is certainly encouraged by educational programs and positive political support. It is the opinion of this Court that activities and programs which enhance opportunities of black citizens to gain positions of responsibility in important operations such as the fire department can be considered charitable as contributing to the public welfare. The same can be said of activities which improve the morale of indispensable public servants who work under unusually stressful and dangerous conditions.” The Comptroller then appealed to the Circuit Court for Baltimore City, which reversed the decision of the Tax Court.

The Circuit Court concluded that because the organization benefited primarily its members, it was “an organization similar to other fraternal organizations.” See generally Lodge #817, Order of Elks v. Supervisor, 292 Md. 533 , ³⁸³ 439 A.2d 591 (1982); Md. Tax-Prop. Code Ann. § 7-202 (discussing common characteristics of fraternal organizations). The Circuit Court then explained: “This Court agrees that it has the right to review the Tax Court’s broad interpretation of the word ‘charitable’, and reach its own legal conclusions as to whether the purposes to which Vulcan Blazers devotes its funds are, as a matter of law, exclusively charitable or educational. While it is uncontested that some of the funds are expended for charitable purposes, it is also clear that the Tax Court held that ALL expenditures are for that purpose.

One would have to be totally blind to conclude that the long listing of checks and other evidence, including testimony, exhibits and other matters presented to the Tax Court, would convince anyone that such expenditures were anything other than benefits for members and their guests.” (Emphasis in original.) In this appeal, appellant contends that the question of whether its expenditures were “devoted exclusively to charitable, religious, or educational purposes” was a question of fact rather than a question of law. As such, it claims, the Circuit Court could not properly