OF THE STATE OF CALIFORNIA In the Matter of the Appeals of .) THE [PDF]

as opposed to other commodities (The Morris Plan Co. v. Johnson, 37 Cal. App. 2d 621 [lo0 P.2d 4933i), and which is in s

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OF THE STATE OF CALIFORNIA

In the Matter of the Appeals of .) THE DINERS? CLUB, INC,

Appearances: For Appellant:

Jacques Leslie Attorney at Law Barry S. Rubin Attorney at Law

'For Respondent:

Crawford H. Thomas Chief Counsel James W. Hamilton Tax Counsel

OPI N I - O - N These appeals are made pursuant to section 25667 of the Revenue and.Taxation Code from the action of the Franchise Tax Board on the protests of The Diners' Club, Inc., against proposed assessments of additional franchise tax in the amounts of $49,ll2.ll, $64,332.86 $33,510&b, $8,952.90, $44,56&l& $54,185.32, and $24,6b8.35 for the income years ended March 31, 1959, 1960, 1961, 1962, 1963, 1964, and 1965, respectively. The question for decision is whether respondent properly classified The Diners* Club, Inc., as a financial corporation, within the meaning of section 23183 of the Revenue and Taxation Code, thereby making it taxable in the appeal years at the rate applicable to banks and financial corporations rather than at the rate applicable to general corporations.

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Appeals of The Diners1 Club,‘Inc. The Diners* Club, Inc., *(hereafter referred to as ttappellantlt) was incorporated under New York law in 194-q. It is primarily .engaged in the operation of an allpurpose credit card plan for its membership. In 1951 it qualified to do business in California and it has operated in this state continuously since that time. Its principal offices are in New York City and in Los Angeles. A prospective member in appellant*s credit card plan completes an application blank and submits it to one of appellantDs o f f i c e s ; he may either pay the annual membership fee at that time or he may elect to be billed for the fee. (Prior to 1961 the membership fee was $5.00 ?er year, from 1961 to 1963 it was $8.00, and,in 1963 it was raised to $lO.OO.> Upon approval of a credit application appellant issues a Diners* Club card to the applicant. The cardholder is automatically entitled to purchase goods and services on credit from any retail outlet which has agreed to honor appellant * s cards 0 ‘Merchant-participants in appellant* s credit card plan enter into a written contract with appellant, whereby they agree to extend to the holder in good standing of a Diners’ Club card the privilege of signing the sales check rather than paying cash for the goods or services which he receives . Appellant agrees to purchase from the participating merchant all valid charges made by holders of appellant*s

cards, without recourse to the merchant, at a discount rate which varies from 4 percent to 7 percent. Each week the merchant sends the signed receipts which he has accumulated during the week to appellant, and appellant makes the discounted payment for those charges to the merchant in the following week. From then on all responsibility for collecting the charged amounts rests with appellant. Holders of Diners* Club cards receive a monthly itemized billing from appellant, and the total shown is then due and payable. As a service to its members appellant issues regional directories listing the merchants and establishments which have agreed to extend credit upon presentation of a Diners’ Club card. It also publishes and distributes a monthly magazine containing articles of general interest to members and merchant-participants at a cost of $1.00 per year. Other services rendered by appellant to its members include a screening of each prospective merchant-participant to be sure the business establishment warrants aFpel1antp.s endorsement and recommendation to its members, analysis and investigation of any complaints or suggestions received from members concerning any participating business establishments, and the maintenance of a travel information service and a worldwide shopping services

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Appeals of The Diners' Club, Inc. When these appeals were and $24,668.35 for the income years ended March 31, 1959, 19a0, 1961, 1962, 1963, 1964, and 1965, respectively, be and the same is hereby sustained. September

Done at Sacramento, California, this 1st day of , 1967, by the State Board of Equalization. BL.J ik $&J&L

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Chairman

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Secretary

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