When had a retailer given enough credit for returned merchandise to claim the deduction?

Plain-English summary

A question arose whether a retailer had given a returned-merchandise credit when it recorded the credit and told the customer it was available, or only when the customer later applied the credit to another purchase or existing debt.

California concluded that actual use was not required. The retailer had given the credit when it entered the amount on its books and sent the customer a letter or other written notification at the customer's last known address.

That timing rule addressed only whether “credit” had been given; the return still had to satisfy the deduction's other requirements.

Common questions

Did the customer have to spend the credit first?

No.

What actions completed the credit?

Book entry by the retailer and written notice to the customer.

Where could notice be sent?

To the customer's last known address.

Citations and references

• Cal. Rev. & Tax. Code § 6012 — statutory returned-merchandise credit language discussed in the memorandum

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: https://cdtfa.ca.gov/lawguides/vol2/suta/490-0000-all.html
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/490-0088.pdf

Original ruling text

State of California

Board of Equalization

490.0088
Memorandum
To:

Mr. H. A. Dickson

From:

E. H. Stetson

Subject:

Returned Merchandise

Date:

August 1, 1960

There has been a question as to whether the retailer has given a "credit" for returned merchandise within the meaning of Section 6012 when he sets up a credit in his books and notifies the customer that the credit is available to him. It has been suggested that perhaps no credit has been given within the meaning of the section until the amount of the credit has actually been applied to the purchase price of other merchandise or to a bona fide debt of the customer to the seller. Assistant Attorney General Dan Kaufmann advised last Friday at a conference that to require actual application of the credit goes beyond the statute, and that it is sufficient if the credit be entered on the books of the retailer and the customer notified that he has the credit by letter or other written notification addressed to the last known address of the customer. EHS:tl cc:

Mr. W. T. Denny