Squire

The question in this case is whether a business corporation, wholly owned by an exempt educational institution, whose earnings are entirely devoted to the purposes of the educational institution, is exempt from federal income tax under § 101(6) of the Internal Revenue Code, 26 U.S.C.A. § 101 (6), as being organized and operated exclusively for an educational purpose. The trial court decided the question in the affirmative.

The taxpayer (appellee) has for many years operated a store on its own property on the campus of Washington State College for the sale to students and faculty members at reasonable prices of text books, student supplies, and other items for the accommodation of students and faculty. The management works in coordination with the administration and faculty of the College in determining items of text books and supplies to be carried in stock. In addition, taxpayer conducts a student restaurant on the campus in quarters furnished without charge by the College. Approximately four per cent of its business is done with persons not connected with the College.

Prior to March 1947 all of taxpayer’s stock was owned by the Associated Students of the State College of…