Before EDGERTON, PROCTOR and BAZELON, Circuit Judges.
UNITED STATES COURT OF APPEALS DISTRICT OF COLUMBIA CIRCUIT.
DECISION OF THE COURT DELIVERED BY THE HONORABLE JUDGE BAZELON
The District of Columbia levied an unincorporated business franchise tax on petitioners under 47 D.C.Code, § 1574b. *fn1 Exempted from that tax are all those engaged in "any trade or business which by law, customs, or ethics cannot be incorporated". *fn2 It is within the "customs" exemption that petitioners seek to bring their stock brokerage business, which they conduct as a partnership under the name W. B. Hibbs & Company. The partnership is not a member of the New York Stock Exchange, but does business there through one of its partners, who is a member. After paying the tax under protest, the issue was decided against petitioners by the Board of Tax Appeals.
Petitioners' argument, briefly stated, is that, historically, stock brokerage has been conducted by individuals rather than corporations and that petitioners' principal source of business, the New York Stock Exchange, bars membership to corporations. *fn3 They would have us draw from these circumstances the conclusion that their business is one which by "customs . . . cannot be incorporated."
As we view the case, it is neither law nor custom which prevents stock brokers from incorporating, but rather their own concern for maintenance of a sound competitive position. It may we be that, without membership on the New York Stock Exchange, petitioners could not operate profitably. For example, since corporations are ineligible to membership on the Exchange, they would have to deal through member brokers. The customer of a corporate broker would then have to pay two commissions - one to the corporate broker and one to the member broker - because Exchange members are forbidden to grant rebates to those forwarding business to them. *fn4 Although the present rules of the Exchange make incorporation undesirable, they do not bring with them the conclusion that petitioners cannot incorporate within the meaning of this tax statute. If they wished to do so, they would find that neither the general incorporation statute of the District of Columbia, *fn5 specific statutes, nor a body of case law erect any barrier. *fn6
As we understand the statute, it refers to customs in the technical sense - those having the force of law - such as the concepts of the law merchant which have been assimilated into our law of commercial transactions. Clearly included within the exemption because of "customs, or ethics" are lawyers and medical doctors who, by reason of the peculiarly confidential and fiduciary nature of their pursuits, are necessarily held to individual responsibility. *fn7 In contrast, stock brokerage is little different from any business whose activities are essentially those of agents for purchase and sale.Since it has long been settled that a corporation may act as an agent for such purposes, *fn8 there is no inherent bar to petitioners' incorporating.
The ephemeral nature of the alleged bar to incorporation is indicated by the fact that the New York Stock Exchange may at any time change its rules so that corporations may be admitted to membership.In fact, such a revision appears to have been considered from time to time. *fn9 It is also worthy of note that (1) the New York Stock Exchange does permit corporations to engage in over-the-counter transactions, collect interest on margin accounts, and, with the consent of the Exchange, permits a member to act as broker for a corporation; (2) some stock exchanges do admit corporate brokers as members. *fn10
The Board's decision is ...