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Connecticut Performing Arts Foundation Inc. v. Brown

decided: September 5, 1986.


Connecticut Performing Arts Foundation appeals from a judgment of the United States District Court for the District of Connecticut, Ellen Bree Burns, Judge, holding that Conn. Gen. Stat. § 12-541(b)(2) did not authorize the tax commissioner to grant appellant an exemption from the state's admissions tax. Affirmed.

Author: Pratt

Before: FRIENDLY,*fn* KAUFMAN, and PRATT, Circuit Judges.

PRATT, Circuit Judge:

This action began in 1975 when plaintiff, the Connecticut Performing Arts Foundation ("CPAF"), sued in the Connecticut Court of Common Pleas to appeal the defendant tax commissioner's revocation of its exemption from the state's admissions tax. In November 1981, shortly after filing a bankruptcy petition under Chapter 11 of the Bankruptcy Code, CPAF removed the action to the bankruptcy court, which held that the commissioner had improperly revoked CPAF's exemption. The state appealed that ruling to the district court, which reversed, and this appeal followed. On March 10, 1986, we certified the determinative questions of law to the Connecticut Supreme Court. The opportunity to resolve the controlling question of state law having been rejected without comment, the matter is left for our resolution.


CPAF is a nonprofit Connecticut corporation organized for the purpose of promoting the performing arts in Connecticut, primarily through the operation of a summer theater. In 1962, CPAF applied to the Internal Revenue Service ("IRS") for an income tax exemption under section 501(c)(3) of the Internal Revenue Code. 26 U.S.C. § 501(c)(3). For some reason unexplained in this record, CPAF subsequently requested that the IRS consider its eligibility for an exemption under § 501(c)(4), rather than under § 501(c)(3). The IRS denied the exemption, finding that "the manner in which [CPAF had] operated is substantially similar to that of a commercial undertaking so as to preclude exemption under section 501(c)(4)."

The admissions tax at issue in this appeal, Conn. Gen. Stat. § 12-541 (the "new tax"), was enacted in July 1971 to replace Conn. Gen. Stat. § 12-526 (1969) (the "old tax"), which provided for exemptions simply by listing types of excluded organizations. The new tax, which itself has since been repealed, provided at all relevant times that

(a) There is hereby imposed a tax of ten per cent of the admission charged to any place of amusement, entertainment or recreation * * *. The tax shall be imposed upon the person making such charge and reimbursement for the tax shall be collected by such person from the purchaser. * * *

(b) No tax shall be imposed under subsection (a) of this section with respect to admission charges all the proceeds of which inure exclusively to (1) organizations exempt from income taxes under the United States Internal Revenue Code or (2) in the absence of a ruling by the Internal Revenue Service, organizations determined by the commissioner of revenue services to be of a similar nature.

Conn. Gen. Stat. § 12-541.

On April 27, 1971, prior to the passage of the new tax, representatives of the Connecticut Tax Department conducted a hearing regarding CPAF's application for exemption from both the old tax and the proposed new tax. The district court found that at that hearing CPAF disclosed the IRS's 1962 denial of CPAF's claimed income tax exemption under § 501(c)(4). CPAF urged that it nevertheless qualified for an exemption from the proposed new tax because it was of a "similar nature" to organizations eligible for exemptions under § 501(c)(3).

CPAF renewed its exemption application after Connecticut adopted the new admissions tax, and additional hearings were held in September 1971. In April 1972 the tax commissioner ruled that CPAF qualified as a "similar nature" organization, with the exemption "to remain in force as long as the operations of the Connecticut Performing Arts remains [sic] unchanged."

Only one year later, however, the tax commissioner notified CPAF that its exemption would expire at the end of the year unless CPAF obtained a ruling from the IRS that it qualified for a federal tax exemption. CPAF contested this action at a hearing in December 1973. In January 1974 the commissioner revoked CPAF's exemption because "subsequent investigation by the department revealed that the organization was denied an exemption from the federal income tax on march 9, 1962." The commissioner then assessed taxes against CPAF in accordance with that revocation. In December 1974, after a rehearing, the tax commissioner reaffirmed the revocation, finding that in light of the "new information" about the denial of CPAF's 1962 application for a federal income tax exemption, the ruling made in 1971 [granting the exemption] was invalid." Under protest, CPAF paid over one million dollars in taxes.

The bankruptcy court found that the commissioner had been aware of the 1962 IRS ruling when he originally granted CPAF's exemption and, therefore, the court reasoned that there was no "new information" to justify the revocation. the bankruptcy court therefore reversed the commissioner's ruling and ordered a refund of all admissions taxes paid by CPAF, without prejudice to the tax commissioner's ...

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