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decided: February 23, 1981.



Author: Per Curiam

[ 450 U.S. Page 1]

Petitioner HCSC-Laundry is a Pennsylvania nonprofit corporation. It was organized in 1967 under the law of that Commonwealth "[to] operate and maintain a hospital laundry and linen supply program for those public hospitals and non-profit hospitals or related health facilities organized and

[ 450 U.S. Page 2]

     operated exclusively for religious, charitable, scientific, or educational purposes that contract with [it]."*fn1

Petitioner provides laundry and linen service to 15 non-profit 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).*fn2 Each participating hospital pays petitioner annual membership dues based upon bed capacity. The ambulance service pays no dues. Petitioner's only other income is derived from (a) a charge for laundry and linen service based upon budgeted costs and (b) a charge of 1 1/2 cents per pound of laundry. Budgeted costs include operating

[ 450 U.S. Page 3]

     expenses, debt retirement, and linen replacement. The amounts charged in excess of costs have been placed in a fund for equipment acquisition and replacement.

 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)*fn3 of the Code was the exclusive provision under which a

[ 450 U.S. Page 4]

     cooperative hospital service organization could qualify as "an organization organized and operated exclusively for charitable purposes" and therefore exempt. Because subsection (e)(1) (A) does not mention laundry, the Service reasoned that petitioner was not entitled to tax exemption.

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).

[ 450 U.S. Page 5]

     Because the ruling of the Court of Appeals is in conflict with decisions elsewhere,*fn4 we grant certiorari, and we now affirm.

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,

[ 450 U.S. Page 6]

     is not included in that list and, indeed, is noticeable for its absence. The issue, thus, is whether that omission prohibits petitioner from qualifying under § 501 as an organization exempt from taxation. The Government's position is that subsection (e) is controlling and exclusive, and because petitioner does not qualify under it, exemption is not available. Petitioner takes the opposing position that § 501 (c)(3) clearly entitles it to the claimed exemption.

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 organizations 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.*fn5 See also § 502, as amended, of the 1954 Code, 26 U. S. C. § 502. This position, however, was rejected by the Court of Claims in Hospital Bureau of Standards and Supplies, Inc. v. United States, 141 Ct. Cl. 91, 158 F.Supp. 560

[ 450 U.S. Page 7]

     (1958). After expressly noting the uncertainty in the law,*fn6 Congress enacted subsection (e). See Revenue and Expenditure Control Act of 1968, Pub. L. 90-364, § 109 (a), 82 Stat. 269.

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, ...

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