Did customer credits earned from prior purchases enter taxable gross receipts when used on a later sale?

Plain-English summary

A retailer awarded customers “B---Bucks” based on earlier purchases and allowed the credits to reduce the price of later merchandise. In a May 15, 1991 letter, Board staff had said the credits should be included in gross receipts.

The December 3, 1993 letter reconsidered and reversed that position. It compared the program with an annotated Christmas-club discount based on a customer's aggregate prior purchases and treated the credits as trade discounts excluded from the taxable measure.

The Board instructed the retailer to begin following the revised advice no later than the second quarter of 1994.

Source identifier note

The first page of the official PDF prints “952.0942,” but its continuation page prints “295.0942,” and CDTFA publishes it at the official 295-0942.pdf URL as support for Annotation 295.0942.

Citations and references

• California Revenue and Taxation Code sections 6012(a), 6012(b)(3), 6012(c)(1), and 6051 (as cited)
• California Sales and Use Tax Annotation 295.0920 (as cited)
• May 15, 1991 Legal Unit letter concluding B---Bucks belonged in gross receipts, enclosed with the later response — prior letter and enclosure copy not appended to the official PDF
• Redacted account's B---Bucks and customer discounts based on prior purchases — program terms, earning and redemption records, customer purchases, credits, invoices, accounting, returns, and tax records not reproduced in the official PDF
• Direction to begin following the reversed advice no later than second-quarter 1994 — no implementation record, amended or later return, audit adjustment, assessment, refund, appeal, or later outcome supplied
• Official Annotation 295.0942's prior-purchase price discounts, trade-discount treatment, exclusion from tax measure, and Dec. 3, 1993 date — annotation omits the first-page 952.0942 identifier conflict, redacted account and B---Bucks name, May 15, 1991 opposite advice and enclosed letter, Annotation 295.0920 comparison and quantitative facts, second-quarter 1994 compliance direction, 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/295-0942.pdf

Original ruling text

952.0942

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION
LEGAL DIVISION (MIC:82)
450 N STREET, SACRAMENTO, CALIFORNIA
(P.O. BOX 942879, SACRAMENTO, CALIFORNIA 94279-0001)
(916) 324-8208

MEMBER
First District
BRAD SHERMAN
Second District, Los Angeles
ERNEST J. DRONENBURG, JR.
Third District, San Diego
MATTHEW K. FONG
Fourth District, Los Angeles
GRAY DAVIS
Controller, Sacramento

December 3, 1993
BURTON W. OLIVER
Executive Director

Ms. B--- N--Tax Accountant
B---, Inc.
XXXX East ---, Suite XXX
---, TX XXXXX
Re: SY -- XX-XXXXXX
Dear Ms. N--:

On May 15, 1991 the Legal Unit of the State Board of Equalization wrote you a letter regarding the application of sales tax to purchases in which the customer uses "B---Bucks." In that letter we concluded that the value of the B---Bucks should be included in gross receipts, which is the amount upon which sales tax is computed. Since we wrote that letter, we have reconsidered our position on this matter and conclude that B---Bucks should not be included in gross receipts. Revenue and Taxation Code section 6051 imposes a sales tax on all retailers measured by their gross receipts from retail sales of tangible personal property. "Gross receipts" is defined in Revenue and Taxation Code section 6012(a) as the total amount of the sale price of the retail sales of retailers, valued in money, whether received in money or otherwise. The total amount of the sale price includes any amount for which credit is allowed by the seller to the purchaser. Rev. & Tax. Code § 6012(b)(3). A cash discount, however, is not included in the measure of tax. Rev. & Tax. Code § 6012(c)(1). The Board's staff issued and published an opinion on a question similar to yours in the Sales and Use Tax Annotations of the Business Taxes Law Guide. In Annotation 295.0920 a retailer had a Christmas Club Plan in which customers received a discount upon the purchase of merchandise between December 1 and December 24 in the amount of 2.5% of the aggregate

Ms. B--- N---

-2-

December 3, 1993
295.0942

sales slips presented by the customer for purchases between January 1 and November 30 of the current year. The staff determined that the discount should be treated as a trade discount. As in the annotation, B--- gives price discounts to A--- Customers based upon prior purchases. We regard these discounts at trade discounts which should not be included in the measure of tax. A copy of our prior letter is enclosed. You should begin following the advice in this letter no later than the second quarter of 1994. If you have further questions regarding Sales and Use Tax Law, please do not hesitate to write again.

Sincerely,

Elizabeth Abreu
Tax Counsel
EA:cl