California Code of Regulations › Title 18 - Public Revenues › Division 3 - Franchise Tax Board › Chapter 3.5 - Bank and Corporation Tax › Subchapter 2 - The Bank and Corporation Franchise Tax › Article 3 - Tax on Banks and Financial Corporations › Section 23183 - Financial Corporation - Defined

Current through Register 2024 Notice Reg. No. 28, July 12, 2024
(a) "Financial corporation" means a
					 corporation, except as provided in subdivision (b) of California Revenue and
					 Taxation Code section
					 23183,
					 which predominantly deals in money or moneyed capital in substantial
					 competition with the business of national banks.
(b) Definitions.
(1) "Predominantly" means over 50% of a
					 corporation's total gross income is attributable to dealings in money or
					 moneyed capital in substantial competition with the business of national banks.
					 Generally, the determination of predominance will be made based upon the
					 division of gross income of for the year in issue. However, the classification
					 of a corporation as a financial corporation or as a nonfinancial corporation
					 will not be changed based upon an occasional year in which its gross income
					 does not or does not exceed the 50% level. For the classification of a
					 corporation as a financial (or nonfinancial) corporation to be changed, there
					 must be a shift in the predominant character of the gross income for two
					 consecutive years and the average of the corporation's gross income in the
					 current and the immediately preceding two years must fail (or satisfy) the
					 predominance test. Where substantial amounts of gross income arise from an
					 incidental or occasional sale of an asset of the taxpayers, such gross income
					 shall be excluded from the for purposes of this subsection. For example, gross
					 income from the sale of a headquarters building shall be excluded.
EXAMPLE: Corporation A earns 80%, 75%, 37%, and 78% of
						its total gross income from dealings in money or moneyed capital, for years #1,
						#2, #3, and #4, respectively. Assuming A meets all the other requirements of
						being classified as a financial corporation, it will be classified as such for
						year #3 as well as for years #1, #2 and #4, respectively. Assuming A meets all
						the other requirements for being classified as a financial corporation, it will
						be classified as such for year #3 as well as for years #1, #2, and #4, because
						the gross income of 37% in year #3 is within the acceptable range for an
						occasional variation from the 50% standard ((80 + 75 + 37) / 3 =
						64%).
(2) "Deals in" means
					 conducting transactions in the course of a trade or business on its own account
					 as opposed to brokering the capital of others. A corporation which buys, sells,
					 places or invests its own assets in dealing in moneyed capital.
EXAMPLE: Corporation B is a stock brokerage firm. Sixty
						percent of its total gross income is attributable to fees charged for buying
						and selling stocks and bonds on behalf of customers. B is not a financial
						corporation because the buying and selling of stocks and bonds on behalf of
						others does not constitute dealing in moneyed capital.
(3) "Money or moneyed capital" includes, but
					 is not limited to, coin, cash, currency, mortgages, deeds of trust, conditional
					 sales contracts, loans, commercial paper, installment notes, credit cards, and
					 accounts receivable.
(4) "In
					 substantial competition" means that a corporation and national banks both
					 engage in seeking and securing in the same locality capital investment of the
					 same class which are substantial in amount, even though the terms and
					 conditions of the business transactions of the same class are not identical. It
					 does not mean there must be competition as to all phases of the business of
					 national banks, or competition as to all types of loans or all possible
					 borrowers. The activities of a corporation need not be identical to those
					 performed by a national bank in order to constitute substantial competition, it
					 is sufficient if there is competition with some, but not all, bases of the
					 business of national banks, or capital is invested in particular operations or
					 investments like those of national banks.
EXAMPLE: Corporation C engages exclusively in purchasing,
						at a discount, conditional sales contracts of household furnishings and other
						low price articles of personal property from small local retail sellers of
						those articles under such contracts. C never makes loans. From 60% to 100% of
						the contracts were purchased by C without recourse to the seller. C requires
						credit references and information from the buyers named in the contracts, which
						must meet C's approval before it will purchase the contracts. No part of the
						payment to the seller for the contracts is withheld as a reserve to protect C
						if the credit buyer defaulted. National banks in the same area as C make
						personal loans for the purchase of household equipment, but rely solely on the
						buyer's credit and do not take the property as security. Those national banks
						also purchase at a discount conditional sales contracts from sellers of
						household equipment, but rely solely upon the credit of the seller rather than
						the buyer named in the contract; take all contracts with recourse; and withhold
						payment to the seller of 20% to 40% of the price as a reserve against default
						under the contract. C is a financial corporation.
EXAMPLE: Corporation D is a wholly owned subsidiary of E
						corporation. E engages exclusively in the sale of retail household items and
						clothing to the general public. E corporation extends credit to its customers
						by issuing credit cards. F then sells to D the credit card customer receivables
						arising out of E's retail business. D engages exclusively in purchasing these
						receivables from E and collecting on those receivables. D is a financial
						corporation.
EXAMPLE: Corporation F makes loans which are secured by
						first mortgages or first deeds of trust on real estate. The loans made by F are
						government insured FHA or VA loans, or conventional or uninsured loans. A
						substantial number of such loans are similar to real estate loans made by
						national banks. All loans made are intended for subsequent sale to
						institutional investors, usually within six months from the time they are
						originally made. After the loans are sold, F services them by collecting
						installments and providing other services, such as making certain that the
						underlying properties are kept insured and that taxes upon them are paid. F
						services only those loans made by it. F is a financial
						corporation.
(5) "Business
					 of national banks" means the businesses in which national banks are permitted
					 to operate.