National Muffler Dealers Association, Inc. v. United States

The National Muffler Dealers Association, Inc. (the association) (plaintiff) was a trade organization whose members were muffler dealers franchised by Midas International Corporation (Midas). Midas franchisees formed the association to negotiate as a group with Midas management for more favorable franchise terms. Thus, the association’s principal activity was to serve as a bargaining agent for its members. Most Midas franchisees were members of the association. The association sought exemption from income taxation under § 501(c)(6) of the Internal Revenue Code, which applied to nonprofit business leagues, chambers of commerce, real-estate boards, and professional football leagues, if no part of the organization’s net earnings inured to the benefit of any private shareholder or individual. The Internal Revenue Service (IRS) (defendant) rejected the association’s application, stating that § 501(c)(6) did not apply to an organization that was not industrywide. The association then amended its bylaws and eliminated the requirement that its members be Midas franchisees, but the association did not recruit or acquire any non-Midas muffler dealers as members. The association sought a refund of taxes paid, and the district court ruled in favor of the IRS. The circuit court affirmed, and the United States Supreme Court granted the association’s petition for certiorari.