Was a clothing retailer's $20 club fee taxable when membership entitled customers to 20% off every purchase?

Plain-English summary

A clothing retailer sold a $20 club membership that entitled the customer to a 20% discount on all purchases.

The Board concluded that the fee was related to anticipated retail sales and therefore belonged in the retailer's taxable gross receipts from sales of tangible personal property.

Citations and references

• California Sales and Use Tax Annotations 295.1540 and 295.1580 (as cited)
• December 28, 1989 Headquarters Audit Review mini-memo asking about a redacted account's club-membership charge — mini-memo and attachments not reproduced in the official PDF
• Redacted clothing-company account, $20 membership, 20-percent all-purchase discount, memberships and anticipated retail sales — account record, club terms, applications, member list, fees, purchases, discounts, invoices, returns, and tax records not reproduced in the official PDF
• Official Annotation 295.0925's clothing company, $20 membership, 20-percent discount, anticipated-retail-sale relationship, taxable gross receipts, Revenue and Taxation Code section 6012 reference, and March 1, 1990 date — annotation adds section 6012 although the source memorandum does not cite it and omits the mini-memo and Audit Review provenance, redacted account, cited Annotations 295.1540 and 295.1580, missing records, 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/295-0925.pdf

Original ruling text

State of California

Board of Equalization
Legal Division (MIC:82)

Memorandum
295.0925
To:

Headquarters – Audit Review (EVA)
Return Review Unit

From:

Ronald L. Dick
Tax Counsel

Subject:

S--- F--- Clothing Company

Date:

March 1, 1990

SY --- XX-XXXXXX

This is in reply to your December 28, 1989 mini-memo regarding the application of sales tax to a charge for a “club membership”. We understand that S--- F--- Clothing Company sells the club membership to customers for $20. The membership fee entitles the customer to a 20% discount on all purchases from S--- F---. You asked whether the charge is subject to tax. Yes, we believe that the $20 membership fee for S--- F---’s club, the purpose of which is to provide a 20 percent discount on all purchases, is related to anticipated retail sales. Therefore, the amount is includable in the gross receipts of S--- F---’s sales of tangible personal property. (Bus. Tax. Law Guide Annots. 295.1540, 295.1580.)

RLD:sr