Long Beach Firemen's Credit Union v. Franchise Tax Board

At issue is the applicability of the franchise tax deduction authorized by Revenue and Taxation Code section 24405. Appellant, Long Beach Firemen’s Credit Union, (hereinafter sometimes referred to as the credit union) sought refund of corporate franchise *53 taxes for the years 1975 and 1976, on the basis that the foregoing section authorized the deduction of certain income received from its investments. The Franchise Tax Board (hereinafter the board) denied the claim for refund. The credit union brought suit in the superior court for recovery of the taxes and following trial, judgment was entered in favor of the defendant board. This appeal followed.

The relevant statute (Rev. & Tax. Code, § 24405) authorizes a credit union to deduct from its gross income; for purposes of determining state franchise taxes owing, “all income resulting from or arising out of business activities for or with their members carried on by them of their agents; ...” We are asked to decide whether the transaction in question was a business activity carried on by the credit union with its member, within the meaning of the statute. We have concluded that it was not.

The credit union is a state…