How did California compute a retailer's trading-stamp cash-discount deduction when stamps were issued on both taxable and nontaxable sales?

Plain-English summary

The Board treated trading stamps as cash discounts under section 6012. A retailer could deduct its stamp cost only to the extent the stamps were given on taxable sales.

The formula was:

deductible stamp cost = total stamp cost × taxable sales with stamps ÷ total sales with stamps

The opinion also said a retailer that had missed the deduction could file a written refund claim stating its basis and quarterly overpayments. Its July 31, 1953 deadline for reaching transactions back to April 1, 1950 was specific to that historical period.

What this means for you

Retailers, loyalty-program operators, accountants, and tax professionals

Allocate reward cost between taxable and exempt sales using the actual stamped-sales ratio. Do not apply the source's 1953 refund dates to a current claim.

Common questions

Q: Was the entire stamp cost deductible?

A: No. Only the portion attributable to taxable sales on which stamps were issued.

Q: What ratio did the opinion use?

A: Taxable stamped sales divided by total stamped sales.

Q: Is the refund deadline still current?

A: No. It was the deadline stated for the 1953 claim period.

Citations and references

• California Revenue and Taxation Code § 6012

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Annotation page: Annotation 555.0040
• Original supporting opinion: 555.0040 PDF

Original ruling text

555.0040

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION
July 3, 1953
Gentlemen:
You inquire concerning a possible deduction for the cost of REDACTED TEXT Stamps given to customers. Section 6012 of the Revenue and Taxation Code allows a deduction for cash discounts allowed and taken on taxable sales. Trading stamps are regarded as cash discounts and the retailer may take as a deduction the cost of trading stamps given to customers on taxable sales. The amount of the deduction to which you are entitled is computed by applying to the cost of the stamps to you the ratio of taxable sales on which stamps are given to total sales on which stamps are given. If you have failed to take this deduction in past returns, you may file a claim for refund. A claim for refund need be in no particular form but must be in writing and state the basis of the claim and should state the amount of the overpayments by quarter. If the claim for refund is filed on or before July 31, 1953, it will be valid as to all transactions on and after April 1, 1950. Very truly yours, Bill Holden Junior Counsel BH: ja cc: San Jose-Auditing