How should a swap-shop retailer value property received in exchange and document the taxable sale?

Plain-English summary

A swap-shop retailer asked how to compute sales tax and keep records when customers exchanged property instead of paying only cash.

Tax counsel said gross receipts equaled the fair market value of the property the retailer received. A value genuinely negotiated by the parties could serve as the sales price, but the Board would reject a figure selected to evade tax. If no cash value was discussed, the retailer had to make the best fair-market-value estimate possible.

Records should identify the exchanged property's description, age, and condition, along with any cash price at which the retailer sold similar articles.

Citations and references

• The official letter cites no statute or regulation by number.
• January 21 letter asking how a swap shop should compute sales tax and keep exchange records — year, request, and attachments, if any, not provided in the official PDF
• Swap-shop exchanges, parties' negotiated values, property descriptions, ages and conditions, and comparable cash-sale prices — transaction records, valuation workpapers, agreements, inventory records, and sales records not reproduced in the official PDF
• March 12, 1952 tax-counsel response — no taxpayer reply, completed exchange, return, audit, assessment, refund claim, agency adoption, appeal, or later outcome supplied
• Official Annotation 295.1120's good-faith bargained-value, fair-market-value estimate, and March 12, 1952 conclusions — annotation omits the January 21 request, recordkeeping question and requested description, age, condition and comparable-price evidence, underlying transactions and records, later outcome, and reliance status and supplies no additional proceeding 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/295-1120.pdf

Original ruling text

295.1120

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

March 12, 1952

Dear Mr.
This is in answer to your letter of January 21 in which you ask for information on the best way to compute sales tax and keep records in the case of a "swap" shop. The retailer's gross receipts from his exchange would be the fair market value of the property received by him. If the parties fix a value in the course of their bargaining, then such price will be deemed the sales price for sales tax purposes, except that we would not accept any figure which was not arrived at in good faith but rather for the purpose of evading sales tax. If the parties mention no cash value in the course of their bargaining, then the retailer must make the best estimate possible of the fair market value of the property received. Our auditors would want the records to show the description, age, and condition of property received in exchange. They would also desire to know the price, if such there be, at which similar articles are sold by the retailer for cash. We realize that this is a difficult problem. We see no simple solution to it. However, some value must be assigned to each sale.

Very truly yours,

E. H. Stetson
Tax Counsel
EHS: ja