APPEAL from the Superior Court of Cook County; the Hon. JOHN
F. BOLTON, Judge, presiding.
MR. JUSTICE DAVIS DELIVERED THE OPINION OF THE COURT:
The superior court of Cook County enjoined the treasurer and other county officials, defendants, from collecting the 1956 taxes on the property of Rotary International, an Illinois not-for-profit corporation, plaintiff, in the sum of $32,794.58, on the theory that plaintiff was a charitable corporation within the provisions of section 19(7) of the Revenue Act of 1939. (Ill. Rev. Stat. 1955, par. 500(7).) Since the public revenue is involved, defendants appealed directly to this court.
The property, located at 1600 Ridge Avenue, Evanston, was improved by a building, completed in 1954, having approximately 48,000 square feet of floor space, and has since been used exclusively by plaintiff for administrative purposes.
The Rotary movement originated in Chicago in 1905, with one club having 4 members. On June 24, 1957, there were 9,493 clubs located in 102 countries, with a total of 447,500 members. Plaintiff was originally chartered as a not-for-profit corporation under the laws of this State on January 30, 1911, as the National Association of Rotary Clubs of America. Its corporate name was changed to International Association of Rotary Clubs on August 9, 1912, and finally to Rotary International on June 6, 1922. Its objects have also been amended from time to time. By resolution adopted May 30, 1951, the articles were amended to provide: "The object of Rotary is to encourage and foster the ideal of service as a basis of worthy enterprise and, in particular, to encourage and foster: 1. The development of acquaintance as an opportunity for service; 2. High ethical stands in business and professions; the recognition of the worthiness of all useful occupations; and the dignifying by each Rotarian of his occupation as an opportunity to serve society; 3. The application of the ideal of service by every Rotarian to his personal, business and community life; 4. The advancement of international understanding, good will, and peace through a world fellowship of business and professional men united in the ideal of service."
The director of plaintiff's executive services division testified that the corporation exists solely as the administrative and coordinating body of the various Rotary clubs; that the function of its central administration is to educate individual Rotary clubs as to the means by which they can perform better service, and to provide charitable benefits through the Rotary Foundation, which are beyond the scope of the individual club and are believed to be handled best on an international basis; that each individual club is autonomous and may adopt its own constitution provided that the stated objects are consistent with those of Rotary International; that plaintiff furnishes individual clubs and members with literature and direct consultation when desired; that each club finances and sponsors civic projects within its own community; and that plaintiff makes no appropriation for financial assistance for any local project of the individual club. The evidence shows that there are 211 Rotary Clubs in Illinois with a total membership of 11,527; and that typical activities sponsored by these local organizations include the maintenance of a summer camp for children, the payment of living expenses for visiting students from abroad, the provision of funds for scholarships for nurses trained at local hospitals, for the erection of a college dormitory, for the cost of library service, for the therapeutic treatment of spastic and cerebral palsied children and for assistance in vocational guidance, as well as the transportation of crippled children. However, such projects also embrace the selection of a local queen and payment of her traveling expenses while on tour, the financing of a trip for members of a class of a local high school to certain eastern cities, the giving of annual awards to members of the local police force for marksmanship, the sending of birthday books to other clubs, and the sponsorship of a unique summer theatre.
The Rotary Foundation, which provides funds for scholarships, was established in 1938. Through contributions received from individual members a goal of $2,000,000 was reached in 1948. The report of plaintiff's secretary for 1956-57 shows that a total of $322,719 was contributed to the fund during the year and that the grand total of contributions to the foundation is $4,977,540. The report of the trustees concurrently presented, reflects total foundation assets of $2,677,799, consisting of cash and securities. The amount appropriated from the corpus of the fund for the year was $300,000, and from earned income, $87,364. In this fiscal year, 120 scholarships were granted. Each scholarship enables a student from one country to pursue his studies in a foreign country for one year. Over 800 such scholarships were provided in the 10-year period from 1947 to 1957. During the 1953-54 fiscal year, 112 scholarships were granted to individuals from 33 countries. Of this number, 32 scholarship students from foreign countries came to the United States to study in a State other than Illinois, while 56 students from States other than Illinois were granted scholarships to study in foreign countries. Sixteen students from foreign countries studied in other foreign countries. Four Illinois students received scholarships to study abroad and a like number of foreign students attended institutions of higher learning in this State.
The foundation is administered on an international basis by the plaintiff's board of directors, and its funds, both cash and securities, are deposited with and held in trust by various banks in the United States and in foreign countries. On February 28, 1957, cash in the amount of $180,585 was on deposit in the United States, and the equivalent of $253,304 was on deposit in other countries. Foundation funds are not intermingled with the general funds and assets of plaintiff.
Plaintiff's principal source of operating income is from membership dues paid by individual members, designated as a "per capita tax." These payments are the obligation of each club and the secretary's report for 1956-57 reflects the termination of certain clubs for failure to make such payments. Plaintiff's budget for the fiscal year 1957-58, shows an estimated total annual income of $2,556,914, of which it was contemplated that $2,417,914 would be derived from per capita tax, and the balance from interest, registration fees, and the sale of publications and supplies. Plaintiff's publications are The Rotarian, printed in English, and the Revista Rotaria, in Spanish. During the fiscal year 1955-56, plaintiff realized a net income of $74,117 from The Rotarian, and reported a loss of $15,972 on Revista Rotaria. In its budget for 1957-58, plaintiff anticipated a net income of $29,190 on The Rotarian and $5,710 on Revista Rotaria. In this budget the sum of $2,500 was appropriated to cover excused payments of per capita tax and other amounts debited to individual clubs. Plaintiff's secretary reported a net income from all operations of $231,562 for 1955-56, and an estimated net income of $175,706 for 1956-57. The report sets forth in summary the balance sheet of plaintiff, as of June 30, 1956, as follows:
Cash ............................. $ 619,794. Long-term Investments ............ 355,920. R.I. Headquarters Property ....... 1,361,233. Other Assets ..................... 436,179. ____________ Total ........................ $2,773,126.
Liabilities and Deferred Income ... $ 373,249. Surplus ........................... 2,399,877. ____________ Total ......................... $2,773,126.
Plaintiff's treasurer, in his report, explained that the above surplus, the largest in Rotary's history, represented $1,361,233 invested in land and buildings, $994,582 in cash, government bonds and other assets, and $44,062 reserved in the headquarters building replacement fund; that on February 28, 1957, plaintiff's total net cash was in the sum of $1,489,744, exclusive of Rotary Foundation cash in plaintiff's accounts and long-term investments of $561,281; and that the surplus had been accumulated as a result of a long-range policy adopted in 1930 with the hope that it would eventually reach an amount equal to plaintiff's annual operating expenses, which for 1956-57 was in the sum of $3,359,487.
In 1956-57, plaintiff's extensive operations were supervised by a president, 3 vice-presidents, a secretary, a treasurer, and 10 directors. In that year 8 of the group were residents of the United States and 8 were from foreign countries. The secretary is a full-time, paid employee. The other officers receive no remuneration designated as salary except for the treasurer who receives $1 per year. The budget for 1957-58, however, appropriated for the president a total of $42,600 of which ...