Opinion ID: 1303086
Heading Depth: 2
Heading Rank: 2

Heading: Profit-Motive Prong

Text: State Auto argues that the Court of Appeals erred in holding that the Raynolds' activities did not meet the profit-motive prong of the Fadden analysis. We agree. The profit-motive prong of Fadden may be satisfied when the activity in question is shown to be such an activity as a means of livelihood, gainful employment, means of earning a living, procuring subsistence or profit, commercial transactions or engagements. Fadden, 274 N.Y.S.2d at 241. The Court of Appeals held that the Raynolds did not have a profit motive as to their activities with the dogs primarily because they never made an actual profit. State Auto v. Raynolds, 350 S.C. 108, 564 S.E.2d 677 (Ct.App.2002). However, we recognize that the concepts of profit motive and actual profit are not identical and while the Raynolds' overall income from selling or breeding the dogs may not have produced a profit, evidence suggests that they at least had a motive to cover their costs. The Raynolds filed losses for Profit or Loss from Business under Schedule C of their federal income tax return pursuant to 26 U.S.C. § 162 (2003) as to their dog breeding and selling expenses. Courts in other jurisdictions have held that seeking such tax advantages is evidence of a profit motive. See Heggen v. Mountain West Farm Bureau Mut. Ins. Co., 220 Mont. 398, 715 P.2d 1060 at 1060 (1986) (holding that the use of business deductions pursuant to steer roping activities indicated a profit motive despite a lack of actual profit); Pacific Indem. Ins. Co. v. Aetna Cas. and Surety Co., 240 Conn. 26, 688 A.2d 319 (1997) (holding that activities related to boarding horses constituted a business pursuit where the insured depreciated items and deducted expenses, evidencing a profit motive). Since 1989, the Raynolds have attended between 40 and 70 dog shows a year. Mr. Raynolds testified that he showed his dogs in an attempt to build their reputation, which increases the value of the dogs for purposes of stud fees and breeding prices. The Raynolds also publicly advertised the sale and breeding prices of their dogs under the name Ko-Akita Kennels, and they have sold puppies for substantial amounts of money. Several jurisdictions have held that actual profit is not necessary to satisfy the profit-motive prong. In Pacific Indem. Ins. Co. v. Aetna Cas. and Surety Co., supra, the Connecticut Supreme Court held an insured need not show an actual profit to be engaged in a business pursuit. Id. Also see Wiley, 534 P.2d 1293, 1295 (Okla.1974) (Profit motive, not actual profit, makes a pursuit a business pursuit). Many businesses are not profitable, but they are businesses nonetheless. Therefore, we hold that the Raynolds' activities satisfy the profit-motive prong.