Cal. Code Regs. tit. 18 § 23183

Current through Register 2024 Notice Reg. No. 24, June 14, 2024

Section 23183 - Financial Corporation - Defined

(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.

Cal. Code Regs. Tit. 18, § 23183

1. New section filed 3-1-91; operative 3-31-91 (Register 91, No. 14).

Note: Authority cited: Section 26422, Revenue and Taxation Code. Reference: Section 23183, Revenue and Taxation Code.

1. New section filed 3-1-91; operative 3-31-91 (Register 91, No. 14).s