Did a lumber retailer have to refund transportation charges to satisfy the full-price requirement for returned merchandise?

Plain-English summary

A lumber retailer sought returned-merchandise deductions without refunding all transportation charges originally billed to customers.

California tied the “full sale price” refund to the amounts included in the sales-tax measure. Separately stated delivery by an independent carrier was not taxable under the rule described, regardless of where title passed, so the retailer did not have to refund that carrier charge to claim the merchandise-return deduction.

Delivery in the retailer's own vehicles was different when title passed only after transportation. Those charges were taxable and therefore part of the full sale price. When only part of a shipment was returned, the retailer had to allocate and refund the related portion of its own taxable delivery charge.

Common questions

Did separately stated common-carrier freight have to be refunded?

No, under the historical rule described in the letter.

Did taxable delivery in the seller's own truck have to be refunded?

Yes, to the extent allocated to the returned goods.

Why did the taxability of freight control the return refund?

The letter construed full sale price to include the charges that sections 6011 and 6012 placed in the measure of tax.

Citations and references

• Cal. Rev. & Tax. Code § 6011 — sales-price definition cited by the letter
• Cal. Rev. & Tax. Code § 6012(b) — returned-merchandise exclusion and gross-receipts definition cited by the letter
• Cal. Rev. & Tax. Code § 6054.5 — separately stated tax-reimbursement credit plan discussed in the source

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/490-0340.pdf

Original ruling text

STATE OF CALIFORNIA

490.0340

STATE BOARD OF EQUALIZATION
November 30, 1964
REDACTED TEXT
Dear Mr. REDACTED TEXT:
This is to inform you of our position with respect to the petition for redetermination of the above named taxpayer. We will recommend to the board that the returned merchandise deductions for carrier deliveries after July 3, 1962, be allowed and the tax be redetermined accordingly. As you know, the returned merchandise deduction is provided by paragraph (b) of section 6012 which provides that gross receipts do not include: “Sale price of property returned by customers when the full sale price is refunded….” The “full sale price” is explained in Sales Tax General Bulletin 52-8 (copy enclosed) to require inclusion of “….any expense prior to the ‘sale’ (i.e. transfer of title, or possession under a conditional sale contract)…” We believe whether transportation charges should be considered part of the full sale price depends on section 6012 which defines “gross receipts” and section 6011 which defines “sales price.” These sections define what charges comprise the measure of tax. We think it would be inconsistent to require transportation charges to be returned as part of the full sale price for purposes of the returned merchandise deduction where they are not required to be included in the measure of sales tax. Since carrier shipments are not taxable irrespective of where title passes as long as they are separately stated, we believe the returned merchandise deduction in those instances is proper and should be allowed in the audit. Where shipment is by your own vehicles and title does not pass until after the transportation is completed, the transportation charges are includible in the measure of tax. Similarly, they are includible in the full sales price for purposes of returned merchandise deduction. We cannot agree with your contention at the hearing that transportation charges should be considered as pertaining to the lumber used by your customers and not the lumber returned. The amount of the transportation charges depends upon the quantity hauled as well as the length of the haul. Accordingly, when a portion is returned, some

allocation must be made of the cost of transporting it to the job site in order to obtain a returned merchandise deduction on hauls by your own vehicles. At the end of the hearing, you suggested that you could issue a billing crediting your customers for tax reimbursement on separately stated, carrier delivered transportation charges which are not subject to tax after July 3, 1962, and thus obtain a refund from the state under the provisions of section 6054.5 of the California Sales and Use Tax Law. At the same time you could charge the tax which you previously refunded on returned merchandise. We see no impediment in any provision of the sales tax law to this plan. We assume that you would do this only with respect to items which are still disallowed by the foregoing interpretation of the returned merchandise deduction. We are referring this matter back to the district office so that they may make the appropriate changes in the audit. They will contact you shortly. Very truly yours, John H. Knowles Associate Tax Counsel JHK:md Enclosure cc:

Inglewood – Subdistrict Administrator
Attached are two copies of hearing officer’s report dated 10-28-64, which has been approved. This hearing was held in West Los Angeles on 8-26-64.