Were refused C.O.D. portrait prints still taxable sales, and could the unpaid balance be a bad debt?

Plain-English summary

Canvassers obtained portrait orders and down payments, issued invoices for the total price, and had the custom prints mailed C.O.D. Some customers refused delivery, and the photography firm kept the deposit.

The custom manufacture, invoice, and down payment consummated the sales before C.O.D. acceptance. The full invoiced amounts were taxable gross receipts, while the unpaid balances on refused deliveries qualified for bad-debt deductions.

Citations and references

• California sales-consummation and bad-debt principles (stated without section numbers in the source)

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: https://cdtfa.ca.gov/lawguides/vol2/suta/130-0000-all.html
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/130-0212.pdf

Original ruling text

State of California

Board of Equalization

Memorandum
To:

Headquarters – Audit Review (RN)

From:

Tax Counsel (GAT) – Headquarters

Subject:

[X]
XXXX --- --- ----- ---. CA XXXXX

130.0212
Date:

November 10, 1965

This is in reply to your memorandum of October 20, 1965.
It is our understanding that taxpayer is a photographic firm which obtains orders for home portraits through canvassers. The canvassers obtain orders for photographs, which are taken by taxpayer's photographer. The proofs are returned to the canvassers who take them to the customers and attempt to obtain additional orders. When the canvassers obtain additional orders for prints, they take a down payment and give the customer an invoice showing the total sales price, down payment, and amount due. The prints are then made up by taxpayer and mailed C.O.D. to the customers. Sometimes the customers refuse to accept the prints, which are returned to taxpayer. In such cases taxpayer does not refund the down payment. Under the foregoing circumstances, since the photographs have been made to the special order of the customers and down payments were made, it is our opinion that the sales were consummated. Therefore, the invoiced amounts are taxable gross receipts, but taxpayer is entitled to a deduction for bad debts with respect to the unpaid balances.

GAT:hm