Could a paint seller deduct the unused portion returned by a customer, and who had to refund the related tax reimbursement?

Plain-English summary

A customer bought paint, paid sales-tax reimbursement, used part of it, and returned the unused portion. The retailer refused to credit the tax reimbursement attributable to the returned paint.

California said the retailer could exclude the returned portion's sale price from its tax measure if it refunded the full allocated price, including the amount designated as sales tax, and the customer was not required to purchase higher-priced property to obtain the credit.

The purchaser could not file a tax-refund claim directly with the state. The proper party from whom to seek the sales-tax-reimbursement credit was the retailer, which could file its own state refund claim if it had overpaid tax.

Common questions

Could a partial return qualify?

Yes, for the unused portion if the full price and tax reimbursement attributable to that portion were refunded.

Who owed the sales tax to California?

The retailer; the customer's separately paid amount was reimbursement to the retailer.

Could the customer claim directly from the Board?

No. The customer had to seek the credit or refund from the seller.

Citations and references

• Cal. Rev. & Tax. Code § 6012 — returned-merchandise exclusion described in the letter
• Historical California Ruling 64 — full-price refund and replacement-purchase conditions

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/490-0400.pdf

Original ruling text

490.0400

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION
June 24, 1957
Dear Mr. REDACTED TEXT:
This is in reply to your letter of June 10 in which you stated that you purchased some paint upon which you paid sales tax reimbursement. You returned the portion of paint which you did not use and the store refused to credit you with the amount of sales tax reimbursement applicable to the price of the returned paint. For your information, the Sales Tax Law (copy enclosed) provides that sales tax must be paid to the State by the retailer of taxable goods, and he is to reimburse himself from the purchaser. The tax is not on the purchaser, but rather, the amount paid as sales tax reimbursement is considered to be part of the purchase price. Ruling 64 (copy enclosed) explains the provisions of Section 6012 of the Sales and Use Tax Law. It provides that a retailer is not taxable on the amount charged for merchandise returned by customers, if the full sale price, including the part designated as “sales tax”, is refunded in cash or credit and if the customer is not required to purchase other property at a price greater than the amount charged for the returned goods. It would appear that if your purchase and return of merchandise comes within the terms of Section 6012 that the seller, if he refunds to you the amount collect as tax reimbursement, may exclude from the measure of his tax liability the sale price of the returned merchandise. Accordingly, you would probably receive from him a refund of sales tax reimbursement paid on account of such merchandise. If there is any overpayment of tax to the State, the seller may file a claim for refund. There is no provision for a purchaser to file such claim. Therefore, the proper party from whom to seek a credit or refund is the seller, not the Board of Equalization. Very truly yours, E. H. Stetson Tax Counsel GAT:rc Enclosures cc:

San Bernardino – Compliance