Did repossessing a freezer and cancelling the unpaid balance produce a full-price return when the seller could not recover the food?

Plain-English summary

A seller transferred a freezer and a substantial quantity of food under one conditional sales contract. The buyer made a down payment smaller than the food price but paid no installments. The seller repossessed the freezer within 90 days but could not recover the food.

The seller argued that cancelling the unpaid contract balance returned the freezer's full sale price. California disagreed because the contract did not say the down payment applied only to the food.

The down payment had to be allocated pro rata between the freezer and food. Because the seller retained the portion allocated to the freezer, it had not refunded the freezer's full sale price and could not obtain returned-merchandise treatment for the repossession.

Common questions

Was the entire down payment assigned to the food?

No. The contract contained no such allocation.

How was the down payment treated?

Pro rata between the freezer and the food.

Did cancelling the unpaid balance complete a full freezer refund?

No, because the seller kept the freezer's share of the down payment.

Citations and references

• Historical California returned-merchandise rule — required refund of the freezer's full sale price despite repossession within the period then allowed

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/490-0200.pdf

Original ruling text

State of California

Board of Equalization

490.0200
Memorandum
To:

San Diego – Auditing (JHMcC)

From:

Headquarters – Sales Tax Counsel (BH)

Subject:

REDACTED TEXT

Date:

November 19, 1953

In your letter of September 25 you state that the taxpayer sold a freezer and a substantial amount of food, accepted a downpayment which was less than the price of the food, and wrote a conditional sales contract for the balance. When no installment payments were made, the freezer was repossessed, but the food could not be repossessed. Since the repossession occurred within 90 days of the sale, taxpayer claims that by foregoing the balance owed on the contract it has returned the full sale price of the freezer to the purchaser. Nowhere in the contract is there any indication that the downpayment was to be applied against the price of the food and not against the price of the freezer. It is our opinion that the downpayment should therefore be regarded as having been applied pro rata to the sale price of the freezer and the sale price of the food. Therefore, the taxpayer has not refunded to the purchaser the full sale price of the freezer. Bill Holden BH:ja