Could a retailer deduct a December discount calculated as 2.5% of the customer's January-November purchases?

Plain-English summary

A retailer's Christmas Club Plan allowed a customer buying merchandise between December 1 and December 24 to receive a discount equal to 2.5% of sales slips from that customer's January-November purchases.

Tax counsel treated the allowance as a trade discount offered to a selected class of customers. The letter permitted the retailer to deduct the discount on its sales and use tax return, with an appropriate notation and an attached explanation referring to the Board correspondence.

The cited line number belongs to the 1950 return and should not be treated as a current filing instruction.

Citations and references

• The official letter cites no statute, regulation, case, or prior ruling by number.
• October 12 request, customer sales slips for January 1–November 30, and historical sales and use tax return with Line 11 — request year and copy, slips, return period, form number, return, instructions, and attached explanation not provided in the official PDF
• Proposed December 1–24 merchandise sales and discount equal to two-and-one-half percent of presented current-year slips — plan terms beyond the response, advertisements, customer eligibility, purchases, slips, discounts, accounting, and tax records not reproduced in the official PDF
• Official Annotation 295.0920's Christmas Club, December discount based on purchases earlier in the year, deductible trade-discount treatment, and Nov. 14, 1950 date — annotation omits the October 12 request, prospective and selected-class posture, exact dates and two-and-one-half-percent rate, sales-slip presentation, historical Line 11 and explanation instructions, missing records, absence of numbered authority, reliance status, and later outcome and supplies no additional transaction record

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/295-0920.pdf

Original ruling text

295.0920

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

November 14, 1950

Dear Miss S---:
This is in answer to your letter of October 12 with respect to the reporting of sales of merchandise during the period between December 1 and December 24 upon which a discount is allowed under your Christmas Club Plan. As we understand the Christmas Club Plan, you will allow a discount upon the purchase of merchandise between December 1 and December 24 in the amount of 2-1/2% of the aggregate sales slips presented by a customer representing purchases between January 1 and November 30 of the current year. It is our opinion that the discount which you will give is analogous to a trade discount to a selected group or class of customers. We suggest that the amount of the discount allowed under this plan be entered at Line 11 of your sales and use tax return with an appropriate notation. It would also be advisable to attach an explanation of the deduction to your sales and use tax return with a reference to our correspondence on the subject. Very truly yours,

R. G. Hamlin
Associate Tax Counsel

RGH:HB
cc:

W. R. T---