*2512 The petitioner was a cooperative association engaged in collecting milk and cream from producers and manufacturing various products from it and marketing them. Its members were producers who received a membership certificate upon payment of the membership fee. No member could hold more than one certificate and the interest and rights of each member in the association were equal. The by-laws provided for a maximum annual payment of 8 per cent on the amount actually paid in by each member. The petitioner collected milk and cream during the taxable years from nonmember as well as member producers, and made monthly distributions to them of the gross receipts from sales, after first deducting operating expenses, amounts paid on the principal of loans made to construct a plant, charges for equipment, and payments of 8 per cent on membership certificates. It claimed exemption under section 231(11) of the Revenue Acts of 1918 and 1921, contending that it was, during the taxable years, within the description later carried in the Revenue Act of 1926, and that this description expresses the intendment of the earlier statutes.
Held: (1) The authority of the Board does not extend to*2513 the point where it may apply later enactments to a period prior to their adoption by assuming that they supply earlier inadvertent omissions, particularly where the question is one of absolute exemption from tax and the administrative construction and application of the earlier statute during the years in question did not embody the later provisions.
(2) That the membership fee was not a loan but created an interest in the business and property and in such distributions of earnings as under the by-laws were proper, and the payments of 8 per cent on membership certificates were dividends and not interest.
(3) That producers dealing with petitioner who did not bring themselves within the terms of the articles and by-laws by paying the membership fee and acquiring an interest in the association, may not be regarded as members.
(4) That the petitioner was not entitled to exemption in view of the facts that the marketing done for nonmembers was substantial both in quantity of product and in number of producers served, that the petitioner did not turn back either to members or to producers generally the proceeds of sales, less necessary selling expenses, and the fact that it was*2514 uncertain whether its operations were confined to that of sales agent for the purpose of marketing products of members, and whether the amount distributed to producers (if that word be substituted for members) was computed on the basis of the quantity of produce furnished by them.
*1160 The Commissioner determined deficiencies in income and profits taxes of $2,860.60 for 1920 and $5,405.46 for 1921. Petitioner claims exemption from any income and profits tax under section 231(11), Revenue Acts of 1918 and 1921.
FINDINGS OF FACT.
The petitioner is a cooperative association under the laws of California, with its principal office at Riverdale, Fresno County, Calif. Its articles of association were executed on August 4, 1909, and filed in the office of the county clerk. The purposes for which it was formed are stated in the articles of association to be: To buy, rent, build, own, sell, lease and operate separators, creameries and cold storage plants; to buy, sell and deal in milk, cream, butter, cheese, condensed milk, evaporated cream and all dairy*2515 products; to manufacture butter, cheese, condensed milk, evaporated cream and other *1161 products of like nature; to own, carry on and conduct dairies; to buy, rent, sell, lease, mortgage and otherwise acquire and deal in all kinds of real and personal property; to borrow and loan money and to give and receive all kinds of notes, bills and other evidences of debts and securities therefor. The articles of association contain, among others, the following provisions:
Sixth: That the amount of the capital [sic] of said Association is and shall be $10,000.00 and the number of shares into which it is divided is one hundred of the par value of $100.00 each.
Seventh: That the amount which each member is to pay upon admission, as membership fee, is the sum of $100.00, the value of one share in said Association, and that each member signing these Articles of Association has actually paid in, to and for this Association such sum of $100.00.
Eighth: That the interest and right of each member of this Association in and to the Association and to all the rights therein, is and shall be equal at all times.
By-laws were adopted October 16, 1910. The corporate powers of the association*2516 are vested in a board of directors composed of members elected at an annual meeting of all the members. The board may borrow not to exceed $3,000. No member is entitled to hold more than one certificate of membership, which is caused by the board to be issued, is signed by the president and countersigned by the secretary, and transferable only upon consent by resolution of the board. Each member is entitled to inspect the books and to cast one vote at the annual election of directors. All persons above the age of eighteen years are eligible to membership upon payment of the membership fee of $100. Upon the expulsion of any member and cancellation of his membership, the board of directors is required to appraise his interest in the association in either money or property, as the directors shall deem best, and pay or deliver the money or property awarded to him within forty days after expulsion; and, in case of the death of a member, if his legal representative does not desire to succeed to his membership, the interest of the deceased member shall be ascertained and paid to his representative in the same manner. Article XX is as follows:
Division of Profits. - Profits of*2517 the Association shall be divided among the members thereof at such time and in such manner as the Board of Directors may deem best, and whenever such profits shall, in the opinion of the Board of Directors warrant a division of the same. In the distribution of dividends no member shall receive more than a sum equal to eight per cent, annually on the amount actually paid in by said member.
When the petitioner was first organized, about eighty-six persons had "signed up" as members. Most of them had given notes for their membership certificates, and, about a year after organization, a sufficient number had paid $100 each to justify construction of a *1162 creamery. In the construction of the plant, which is situated in Riverdale, the farmers in the vicinity volunteered in hauling machinery, gravel, and cement from a railroad ten miles away. Operations were commenced on January 21, 1911, and up to that time the holders of membership certificates had paid in, in cash, about $3,000. The board borrowed $8,000 on June 1, 1911, in order to meet obligations under petitioner's contracts and to carry on the business. In 1918 the petitioner borrowed $40,000 on notes guaranteed*2518 by its members and directors, for the purpose of constructing an addition to its plant for the handling of milk and the manufacture of by-products, and the addition was completed in March, 1919.
It has been the practice of the petitioner from the beginning to receive milk and cream from producers within an area of approximately ten square miles of Riverdale. The deliveries were weighed and tested daily and a memorandum was made thereof. A memorandum was also sent to the producer showing the weight, butter fat test, and butter fat quotation. The only permanent records maintained by the petitioner, except for payments made by checks, consisted of monthly statements of operations and disposition of the profits prepared by its manager, and annual reports based thereon which were submitted by him at the annual meeting of the association.
The monthly statements were typewritten sheets made up at the end of the month from "working sheets" or "scrap paper records." They show gross receipts from sales of butter, butter fat, sweet cream, whey, and other milk products manufactured from milk and cream supplied by member and nonmember dairymen in the surrounding territory, and charges*2519 made against producers for hauling milk to petitioner's plant.
The operating expenses for the month - consisting of items for engine room, butter room, employees' and milk haulers' salaries, selling expenses in Los Angeles, express for milk, cream and butter, local freight and express, interest on notes, expense of handling milk and cream in Los Angeles, petty cash, bills for current expenses accumulated during the month, and barrel account - were totaled and deducted from the gross receipts. The monthly statements also show the quantity of products received, manufactured, and sold, and the average quotation for butter on the Los Angeles exchange, and the amount of the profits distributed among patrons, which was paid on the 15th of the following month on the basis of the quantity of butter fat delivered by them to the petitioner.
Payments of 8 per cent, or $8, each, and no more, were made to owners of membership certificates in some but not all of the years *1163 prior to 1920. The payments were made in 1920 and 1921, in the aggregate amount of $632 for each year. The payment of $632 in 1920 is shown in the petitioner's return for that year as a dividend paid in cash*2520 on October 15. It is not shown on the 1921 return.
In determining the total operating expenses, the needs of the plant for future months and interest on indebtedness were taken into consideration, and a sufficient amount was accumulated to provide for payment thereof and also to provide for improvements and additional equipment in the future. The monthly statements show that payments were made in each month of each taxable year on the principal of outstanding notes, in the amounts of $13,000 in 1920 and $17,000 in 1921; that in June, 1920, $5,403.99 was charged off to equipment; and that in 1921, $37,718.11 was paid to two individuals for butter fat "bought from" them.
The amounts of the 8 per cent payments to members, the amounts of the payments on principal of notes, the amounts charged off to equipment, and the amounts paid for butter purchased in 1921, were not included in the operating expenses of each month, as shown on the monthly statements, but were separately deducted from gross receipts in computing the total amount paid to producers.
Interest payments on notes of petitioner for money borrowed to construct its plant were included in the operating expenses shown*2521 on the monthly statements.
The total income, amounts distributed to patrons, expenses, etc., as shown in the annual reports prepared from the monthly statements for 1920 and 1921, are as follows:
| 1920 | 1921 | |
| Balance on hand Jan. 1 | $2,846.85 | $609.97 |
| Total income | 707,091.46 | 592,919.45 |
| 709,938.31 | 593,529.42 | |
| Paid patrons | 520,237.69 | 407,792.90 |
| Operating expenses | 170,054.66 | 167,808.19 |
| Paid off on notes | 13,000.00 | 17,000.00 |
| Equipment account | 5,403.99 | |
| Dividend to members | 632.00 | 632.00 |
| Balance on hand | 609.97 | 296.33 |
| 709,938.31 | 593,529.42 |
The patrons of the petitioner numbered, on the average, 310 during 1920, of whom 74 were owners of membership certificates and 236 were not. During 1921 the petitioner had, on the average, 351 patrons, of whom 79 were the owners of membership certificates and 272 were not. The payments by petitioner during the taxable *1164 years for produce were distributed among members and nonmembers as follows:
| Year | To members | To nonmembers |
| 1920 | $269,760.40 | $248,422.84 |
| 1921 | 195,208.22 | 176,434.83 |
The payments made to members amount to approximately 52 per cent of the total paid to*2522 patrons for produce in each year.
With the exception of the $8 payments, members and nonmembers were treated alike during the taxable years. No extra money was paid to either class, by way of percentage, and all producers received the same price for their products.
The annual meetings of the association were held every year from 1911 to 1921, inclusive. They were attended by the people of the community generally, and were open to and were actually attended by producers of the district who did not own membership certificates as well as those who did. The annual reports hereinbefore referred to were submitted at these meetings. It was the custom to serve dinners at these meetings, which were prepared by the business people of the town and the wives of producers, and the expenses were paid by petitioner. In addition, the petitioner held special meetings and educational meetings. The petitioner usually brought experts to the educational meetings, which were attended by dairymen of the district and practically the entire community, and at which discussions took place of matters of interest to dairymen.
OPINION.
STERNHAGEN: This petitioner, in March, 1921, filed a corporation*2523 income and profits-tax return for 1920, showing gross income $180,853.76, which was the difference of gross sales $701,091.45 less cost of goods sold $520,237.69; deductions $175,458.65, including expenses, interest, taxes and depreciation; leaving a net income of $5,395.11, upon which an income tax was computed at $339.51. The invested capital was stated to be $2,846.85, which coincided with the amount shown as surplus. A cash dividend was shown as paid October 15, of $632. Its return for 1921 was filed in March, 1922, showing gross income $182,626.55, deductions $176,665.69, net income $5,960.86, invested capital $25,900, and total tax $696.63. Auditing these returns, the Commissioner found that certain capital expenditures had been improperly deducted as expenses, increased sales, adjusted inventory and allowed additional depreciation, all of which, carried into a recomputation of tax, resulted in the determination of these deficiencies.
*1165 The petitioner makes no contention as to the amount of the deficiencies, if it is to be held subject to tax. It now claims, however, that it is entirely exempt from tax by virtue of section 231(11), Revenue Act of 1918, as to*2524 the year 1920, and section 231(11), Revenue Act of 1921, as to the year 1921. For present purposes, both sections are identical, and the material language is as follows:
Farmers', fruit growers', or like associations, organized and operated as sales agents for the purpose of marketing the products of members and turning back to them the proceeds of sales, less the necessary selling expenses, on the basis of the quantity of produce furnished by them.
The petitioner argues retroactively by undertaking first to demonstrate that it was, in 1920 and 1921, within the description later carried in the Revenue Act of 1926, and Regulations 69; that this description expresses the intendment of the earlier statutes, and therefore that it is within the exemption of the acts in force during 1920 and 1921. This argument seems to carry with it the tacit admission that were the exemption of 1920 and 1921 to be applied strictly in accordance with the language of the acts then in force as above quoted, or the language of the regulations then in force, it would not comprehend this petitioner.
While there is some allurement in the reasoning that the latest statute represents the most mature thought*2525 and the highest public purpose and that we should promote this by sweeping away refinements of statutory language, it must not be forgotten that the exemption has been applied in its various stages to all taxpayers alike in accordance with the language of the statute and regulations in effect at the time. Congress in each statute expressed the public purpose and, except for ambiguities or obvious errors of drafting, the statute must be applied to all alike in accordance with its terms. Statutory construction is often directed by a consideration of later enactments to clear up doubt in the meaning of the earlier or to correct manifest error in its administration. But we do not understand our authority to extend to the point where we may apply later enactments to a period prior to their adoption by Congress by assuming that they supply earlier inadvertent omissions. . This is particularly true when, as in this case, it is an absolute exemption from tax we are called on to consider, and the administrative construction and application of the earlier statute during the years in question did not embody the later provisions. We*2526 must, therefore, consider whether, as shown by the evidence, the petitioner was within the description of the Revenue Acts of 1918 and 1921.
It does not appear under what provision of the California statutes the petitioner was incorporated. We may assume, therefore, that *1166 it acted within its powers in issuing certificates, paying eight dollars a year to the holders, and calling it a dividend. There is no reason for the purpose of this tax to call this interest, as petitioner attempts to do. ; ; . The membership fee was not a loan, but created an interest in the business and property and in such distributions of earnings as under the by-laws were proper. The limitation of the dividends to a small amount might, if standing alone, justify attributing to them but little significance in applying the statute, but would not warrant the Procrustean designation of them as interest.
And this we think is also true as to who may be called members. Not all producers who dealt with petitioner*2527 were members, and it would be a misnomer to call them such unless they brought themselves within the terms of the articles and the by-laws by paying the fee and thus acquiring the interest in and assuming the responsibility of the business and property. The members were 74, and upon this fact petitioner's right to exemption must stand.
Thus, if we adhere to the facts and do not evade them by distorting terms to fit the statute, it appears that petitioner is not merely conducted for its members, but serves many more producers who are not members than it does members. Although the members received slightly more of the distributed proceeds in each year than did nonmembers, and this might indicate that the products marketed for members exceeded those of nonmembers, this is not necessarily so; and if it were, it would not meet the statute. The marketing done by petitioner for nonmembers was so substantial both in quantity (as indicated by distribution of proceeds) and in number of producers served that it can not be regarded as insignificant or incidental to the cooperative service for members.
From the evidence, it does not clearly appear whether petitioner's operations were confined*2528 to that of "sales agent for the purpose of marketing the products of members." It appears rather from the testimony as to the nature of its gross receipts that much of its operations consist of manufacturing various products from milk and cream. But in view of our decision otherwise, we need not consider whether this alone would destroy the exemption.
Furthermore, it can not be said that the distribution of proceeds is such as to bring petitioner within the statutory exemption. The members paid in less than $8,000. Prior to the years in question the directors borrowed $48,000 to be used in the construction of plant. This was covered by notes. Both the interest and principal of these notes were being paid out of earnings before the producers were paid. The result was to build a substantial and valuable plant in which *1167 only the members had an interest and pro tanto to depart from the cooperative distribution contemplated by the statute. There is also some unexplained reference to payments on equipment, but we need not consider this. Nor need we consider whether the payment of $632 of dividends to members is important enough to destroy the exemption. It seems*2529 clear enough that petitioner does not turn back either to members or to producers generally "the proceeds of sales, less the necessary selling expenses."
It is also uncertain whether the amount distributed to producers (if we substitute the word for members) is computed "on the basis of the quantity of produce furnished by them." The monthly statements show an amount "paid to patrons" and show a distribution thereof proportioned to the grades of produce received. But it is not clear how the amount was arrived at or how its distribution was computed. In 1921 over $37,000 was shown separately to have been paid to two persons for butter fat purchased. This is unexplained and we can not find its place in a cooperative plan.
Looking alone at the statutes covering the years in question, as well as the administrative regulations pursuant thereto in effect at the time, we are led to the opinion that petitioner was not exempt. The later statutes and regulations seem to be more liberal, but, even if we assume them to provide the exemption claimed (which we do not decide), we are not at liberty to apply them retroactively in this instance.
*2530 Petitioner cites , to support a liberal application of the statute. There the Supreme Court found that the general characterization of a well known class of organizations was controlling over the description of its qualifications. Here we have no such characterization of a general class, but a specific enumeration of the attributes necessary to qualify for exemption. Unless the attributes are substantially present the statute is not met and the exemption must be denied.
Judgment will be entered for the respondent.