Which exchange rate determined California gross receipts when a retailer accepted foreign currency that later changed value?

Plain-English summary

California gross receipts had to be measured in U.S. dollars. When a retailer accepted foreign currency in an ordinary over-the-counter sale, the controlling conversion rate was the exchange rate in effect at the time of that sale.

The memorandum gave a simple example: if the foreign currency was worth $2.00 at the sale date but $2.50 when the retailer filed its return, the proper measure remained $2.00. Likewise, a later decline while the retailer held the currency did not alter the original sale measure.

The appended 1976 letter had discussed the retailer's peso devaluation as a possible cash-discount loss. The reviewing memorandum agreed with using the sale-date exchange rate but said the better analysis was not a separate "deductible loss"; it was simply the correct U.S.-dollar measurement of gross receipts.

Citations and references

• California Revenue and Taxation Code section 6012 (as cited)
• Undated W. D. Dunn request for review of his December 7, 1976 letter — request not reproduced beyond the March 8 memorandum's opening statement
• October 29, 1976 retailer letter reporting Mexican-peso acceptance and devaluation loss — letter not reproduced beyond the appended December 7 response's summary
• December 7, 1976 W. D. Dunn letter using 12.50- and 20.60-peso exchange rates, close-of-business conversion, tentative “deductable loss” language, and no allowance for later holding loss — letter appended in full to the official PDF
• Retailer's over-the-counter sales, foreign-currency receipts, exchange rates, devaluation, retention and conversion — sales slips, prices, currency amounts, rate sources and timestamps, holdings, conversions, accounting, returns, and tax records not reproduced in the official PDF
• Official Annotation 295.0945's taxpayer loss, Mexican-currency devaluation, U.S.-dollar measure, sale-time rate, presumed acceptance rate, and March 8, 1977 date — annotation omits the internal review and request provenance, appended October 29 and December 7 correspondence chain, 12.50-to-one and 20.60-to-one rates, $2.00 and $2.50 example, auditing and administrative concern, “deductible loss” disagreement, holding-loss limit, 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/295-0945.pdf

Original ruling text

State of California

Board of Equalization

Memorandum

To:

W. D. Dunn

From:

Glenn L. Rigby

295.0945

Date:

March 8, 1977

Subject:

As you requested, I reviewed the conclusions expressed in Mr. Dunn‘s letter of December 7, to ---. We start out with the initial proposition that to determine the proper amount of gross receipts we have to convert by rate of exchange, the foreign currency to U.S. dollars. In regard to normal over the counter sales, we would hold that the rate of exchange in existence at the time of sale is controlling. For instance, if the foreign currency was worth $2.00 at the date of sale, but was worth $2.50 at the time of reporting, the proper measure would be $2.00. I recognize this presents some problems from an auditing and administrative standpoint. The fact remains, however, we must for sales and use tax purposes, measure gross receipts by U.S. dollars and when foreign currency is accepted, we must presume that it is accepted at the rate of exchange in effect at the time of sale. Although the conclusions expressed in --- letter of December 7 are correct, I do have some reservations in concluding that the retailer has a "deductible loss" when he accepts foreign currency at the devalued rate of exchange. I would not be inclined to call it a loss. I think the better approach is just conclude we are trying to determine the gross receipts in U.S. dollars by using the rate of exchange at the time of sale. If you have any questions, please let me know.

GLR: po

Telephone (916) 445-0387

December 7, 1976

Dear: --In your letter of October 29, 1976, you stated that you have lost money due to the devaluation of the Mexican currency. You stated that you had accepted Mexican pesos at a rate of 12.50 to one dollar even after the date of devaluation which reduced the rate of exchange to 20.60 to one. You asked if this loss could be claimed as a cash discount. Since Section 6012 of the Revenue and Taxation Code measure gross receipts in terms of American dollars, it would appear that you do have a deductable loss. To determine this loss, the value received must be based on the conversion rate of exchange, at the close of business of the date the sale was made. Any additional loss resulting from your holding this currency in hopes of gaining back amounts lost, would not be allowable. I hope this information is or help to you.

Very truly yours,

W. D. Dunn
Supervisor Auditor

REP:em