Ezel / Tax Rulings / CA

Could a retailer treat a manufacturer's charge for accepting returned special-order goods as a rehandling and restocking cost?

Short answer Yes. California treated the supplier's deduction from the retailer's return credit as part of the retailer's allowable rehandling and restocking costs.
State
CA
Ruling
Annotation 490.0260
Tax type
Sales and Use Tax
Issued
1965-04-06
Issued by
California State Board of Equalization
Requested by
Redacted retailer petitioning for redetermination
Topics
special order returned merchandise retailer restocking credit
Source
View Original PDF

Apply this to your situation

This page answers the general question as of 1965. Ask about yours and see what current California tax law says, with citations.

Currency note: this ruling is from 1965
Subsequent statutory amendments, regulation changes, court decisions, or later rulings may have changed the analysis. Treat this page as historical context, not current tax advice. Verify current law before relying on any specific rule, rate, or position mentioned here.
Disclaimer: This brief April 6, 1965 letter addressed a retailer whose manufacturer-supplier deducted charges when granting credit for customer-returned special-order merchandise. California concluded those charges were part of the retailer's rehandling and restocking cost and directed a reaudit deleting return sales disallowed solely because that amount had been retained. CDTFA says statutory law controls if it conflicts with an annotation. The reason for the supplier charge, actual return handling, customer refund, substantiation, and current returned-merchandise rules can change the result.
About this page: The plain-English summary, reader guidance, and Q&A below were written by Ezel based on the official state tax ruling. The original ruling (linked on this page as a PDF) is the authoritative source for any reliance.
View original ruling (PDF)

Plain-English summary

A customer returned special-order merchandise to a retailer, and the retailer returned it to the manufacturer for credit. The manufacturer kept part of the credit as a return charge.

California treated the manufacturer's retained amount as part of the retailer's cost of rehandling and restocking the customer return. It therefore recommended deleting returned sales that the audit had disallowed solely because of that supplier charge.

Common questions

Was the manufacturer charge treated as part of the customer's taxable sale price?

No. It was treated as the retailer's rehandling and restocking cost.

What happened to the audit adjustment?

California directed a reaudit to delete returned sales disallowed because the manufacturer had retained the charge.

Citations and references

  • California returned-merchandise rehandling and restocking rule — applied to the supplier's special-order return charge

Source

Original ruling text

490.0260

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

April 6, 1965

Gentlemen:
We have completed our review of your petition for redetermination of sales and use tax. We have concluded that the charges deducted by your manufacturer-supplier in granting credit for the return of special order merchandise should be regarded as part of your cost of restocking and rehandling. Accordingly, all returned sales disallowed as a result of the retention of this amount will be deleted from the measure of tax. A representative of the field audit staff will contact you in the near future to initiate the reaudit adjustment. Very truly yours,

W. E. Burkett
Associate Tax Counsel

WEB:cw

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