Were full custom-portrait invoice amounts taxable when customers paid deposits but later refused C.O.D. delivery of the finished prints?

Plain-English summary

A photography company used canvassers to obtain home-portrait orders. After a photographer took the pictures, canvassers showed proofs and secured additional print orders, collected down payments, and issued invoices for the full price. Finished prints were mailed C.O.D.

Some customers refused the C.O.D. package, and the company kept their deposits. Tax counsel concluded that the special-order photographs and down payments made the sales complete, so the full invoiced amounts were taxable gross receipts.

The company could deduct the unpaid C.O.D. balances as bad debts.

Citations and references

• The official memorandum cites no statute, regulation, case, or prior ruling by number.
• Oct. 20, 1965 Headquarters Audit Review memorandum concerning refused C.O.D. portrait-print orders — memorandum and supporting records not reproduced in the official PDF
• Customer invoices stating the total portrait price, down payment, and balance due — dates, customers, invoice numbers, amounts, and copies not provided in the official PDF
• Canvasser orders, photographer sessions, proofs, additional print orders, down payments, finished prints, C.O.D. shipments, refusals, returns, retained deposits, and unpaid balances — facts supplied; orders, photographs, proofs, receipts, shipment and return records, customer correspondence, deposit records, and bad-debt records not reproduced in the official PDF
• Official Annotation 295.0625's photographic firm, canvassers, portraits, proofs, additional orders, down payments, invoices, C.O.D. delivery, refusal and return, retained deposit, special order, consummated sale, taxable invoice, bad-debt deduction, and Nov. 10, 1965 date — annotation omits the Oct. 20 request, absence of numbered legal authority, missing customer and accounting records, and later audit or deduction outcome and supplies no additional transaction record
• Possible delivery refusal, deposit retention, bad-debt charge-off or deduction, return filing, audit adjustment, assessment, refund claim, appeal, or other later agency action — not supplied in the official PDF

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: https://cdtfa.ca.gov/lawguides/vol2/suta/295-0000-all.html
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/295-0625.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

295.0625
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