Sherwood

This is an action to collect business taxes which the plaintiff, the City of Los Angeles (City), contends are owed it by the defendants. After a nonjury trial, judgment was entered for the defendants, and the City appeals.

Defendants are three medical doctors who formed a corporation called Vendunn Company (Vendunn). In 1951, Vendunn purchased land and constructed a medical building. The defendants set up their individual practices in this building and leased office space to other doctors. It was defendants’ intention that the building would house most every medical specialty so that the nearby community would have available comprehensive medical care under one roof. All the doctors practice individually but share operating costs. All receipts from the doctors’ patients are collected by the defendants and deposited in a clearance account. The doctors receive a certain percentage of their receipts out of this account, another percentage is allotted for rent paid to Vendunn and the remainder of the receipts are deposited into the Sherwood-Trimble Special Business Account (Special Business Account). (See fn. 3, infra.)

The City claims that defendants are engaged in a…