dissenting: I cannot agree with the majority opinion in holding that petitioner is not exempt from tax.
The petitioner contends that while it has a separate corporate existence it is, in fact, an ancillary part of Stanford University and an essential factor in the proper administration of the university’s activities.
The petitioner’s corporate structure and its method of conducting its business show conclusively that no part of its net earnings inures to the benefit of any private stockholder or individual. The bylaws specifically provide that the pecuniary interest of a “ member ” or shareholder is limited to his $1 membership fee, that no interest or dividend shall be paid thereon, that no distribution of the profits or assets shall be made to members, and that upon the cessation of membership the fee shall be returned to the member or his legal representative. The conditions imposed by the bylaws were carefully observed. Whatever so-called profits or earnings were available were distributed by way of rebate to the students and faculty *1284purchasers and not to the petitioner’s shareholders or members. Such “ profits ” were determined after paying all necessary expenses of operation and setting aside a reserve for working capital and emergency requirements. The only effect of this distribution was to sell the books and supplies for less than the quoted price.
The amounts retained in surplus were added to the “ common property of the Bookstore.” Since only the current excess of assets over expenditures was made the basis of rebate, the accumulated amounts so retained remained in the surplus account unless needed for expenses or an unexpected demand such as loss by fire, earthquake, etc. Upon the dissolution of the association or the discontinuance of its business the net assets may be transferred to an organization with purposes similar to those of the petitioner or applied to any educational, charitable or benevolent institution or purpose. In no event can any distribution of profits or assets be made to members. Thus in no sense can it be said that any part of the net earnings inures to the benefit of any private shareholder or individual.
We then must determine whether or not the petitioner was organized and operated exclusively for an educational purpose. It is conceded that Stanford itself is an educational institution exempt from taxation under the statute. The question is whether or not the petitioner is such an ancillary organization, essential to the proper and efficient functioning of Stanford, as to bring it within the purview of the statute. I think it is. The record shows that the sole purpose of the petitioner’s formation and operation was to provide for the students and faculty of Stanford textbooks and other necessary supplies at the lowest possible cost. The rebate system was utilized as the most convenient means of effecting the low cost. The function performed by the petitioner was as pertinent and necessary to the successful operation of the university as many other activities which, under certain circumstances, conceivably could be dispensed with — the maintenance of a dormitory, or the operation of a dining hall. Nor is the incidental receipt of an operating profit indicative of a departure from its basic purpose any more than the sale of agricultural products raised on the institution’s ground, or the charging of admission fees to athletic contests. The primary purpose for which a corporation is organized and according to which it operates determines its rights to exemption. Trinidad v. Sagrada Orden de Predicadores, 263 U.S. 578; Unity School of Christianity, 4 B.T.A. 61; Sand Springs Home, 6 B.T.A. 198; Frederic C. Leubuscher, Executor, 21 B.T.A. 1022. I conclude, therefore, that the activity itself can properly be classed as educational in character.
I am further of the opinion that the petitioner was so closely connected with Stanford as to be considered an associated part of its educational plant. The members of the petitioner all belong to *1285the Stanford faculty. They represented many departments. In fact, no one not connected with Stanford could be a member. The kind and number of textbooks and forms carried by the petitioner were absolutely dependent upon the preference of the professor and the popularity of his course. The petitioner’s sales to persons not connected with the university were casual and insignificant — less than 1 percent of the total sales. Its sales of textbooks and supplies formed approximately 90 percent of its business. Its purchases and sales were, therefore, directly related to the needs of Stanford. The petitioner’s bookstore was situated on Stanford campus, a mile and a half from the nearest town. Geographically, therefore, as well as otherwise, its ojierations were peculiarly limited to Stanford students and professors and were essential to the efficient conduct of the university. There was no private bookstore offering the same services. The bookstore made a report to the university annually. The record establishes as a fact that the operation of a bookstore on or near the campus of the university was essential to the efficient operation of the university.
In my opinion the facts presented prove that the primary and underlying purpose of the petitioner’s organization and operation was educational and that it is entitled to exemption under the provisions of section 103 (6) of the Revenue Act of 1928 and like sections of prior acts.
Smith and Adams agree with this dissent. Teammell agrees with the result reached in this dissent.