Could a retailer reduce taxable receipts by paying nonprofit groups a percentage of purchases made by their members?

Plain-English summary

A retailer asked whether money turned over to several nonprofit groups as a percentage of their members' purchases could be treated as a discount supporting a proportional sales-tax refund.

Tax counsel said no. The organization payment was not a discount to the person who made the purchase; it was an expense of the retailer's business.

The rebate therefore did not reduce gross receipts, and tax remained based on the full amount charged to each purchaser.

Citations and references

• The official letter cites no statute, regulation, case, or prior ruling by number.
• November 9 request asking whether percentage refunds paid to nonprofit groups based on member purchases could reduce taxable receipts — year, complete contents, attachments, and copy not provided in the official PDF
• Unidentified nonprofit groups, member purchases, percentage refunds, customer charges, collected sales and use tax, and proposed proportional tax refunds — group agreements, percentage, member identification, invoices, payments, tax reimbursement, refund records, returns, and tax records not reproduced in the official PDF
• Official Annotation 295.1000's nonprofit-group refund based on member purchases, no cash discount, business-expense treatment, full customer charge as tax measure, and Nov. 20, 1964 date — annotation omits the request provenance, multiple groups, proposed proportional sales-and-use-tax refund, missing amounts and 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/295-1000.pdf

Original ruling text

295.1000

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

November 20, 1964

Gentlemen:
This is in reply to your letter of November 9 in which you inquire if money turned over to several nonprofit groups as a percentage refund of purchases made by the groups’ members may be treated as a discount on purchases so that you could also refund a proportionate part of the sales and use tax collected. Such a refund to those nonprofit groups would not be considered to be a discount to the person who made the purchase. Such a refund would be considered an expense of doing business rather than a reduction of the receipts from the sale. Accordingly, such a refund could not be excluded from the measure of gross receipts, and you would be required to pay tax on the total amount charged to the purchaser. If you have any further questions, please do not hesitate to write to us again. Very truly yours,

E. H. Stetson
Tax Counsel
By______
Philip R. Dougherty
PRD:md
cc:

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