California State Automobile Ass'n v. Franchise Tax Board

In this case of first impression, we grapple with the meaning of the phrase “co-operative or a mutual basis” as it appears in section 24405 of the Revenue and Taxation Code.

In 1973 defendant and appellant Franchise Tax Board (hereinafter, the Board) issued proposed additional assessments of taxes due from plaintiff-respondent California State Automobile Association (hereinafter CSAA) based upon the Board’s determination that for the years 1968 through 1971, CSAA improperly took a deduction pursuant to Revenue and Taxation section 24405 for income on business activities conducted with its members and income from nonmember business conducted on a nonprofit basis. The basis for the Board’s determination was that CSAA was not eligible for the deduction because it was not “organized and operated in whole or in part on a co-operative or a mutual basis,” within the meaning of section 24405.

After the Board issued a ruling upholding the additional assessment, CSAA paid the disputed taxes and filed a complaint for a refund in superior court. The superior court granted CSAA’s motion for summary judgment, finding that CSAA did indeed fall within the purview of section 24405. The…