Ezel / Tax Rulings / CA

How did a vendor's competitive price adjustment affect the taxable sales price when actual freight was separately stated?

Short answer The stated sales-price balance was the tax measure if actual carrier freight was separately stated and title passed at shipment. Merely absorbing freight did not reduce the measure.
State
CA
Ruling
Annotation 557.0460
Tax type
Sales and Use Tax
Issued
1954-12-20
Issued by
California State Board of Equalization
Requested by
Taxpayer asking about vendor price adjustments used to meet competition (identity redacted)
Topics
price adjustment separate statement title passage tax measure
Source
View Original PDF

Apply this to your situation

This page answers the general question as of 1954. Ask about yours and see what current California tax law says, with citations.

Currency note: this ruling is from 1954
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 December 20, 1954 letter addressed vendor price adjustments made to meet a competitor's price. It distinguished merely reducing or assuming freight from separately stating actual carrier freight and the remaining sales price, and it required customer title at the shipment point. CDTFA says statutory law controls if it conflicts with an annotation. Actual freight, invoice allocation, purchaser payment, title timing, shipment terms, competitive discount substance, and current law 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 vendor adjusted its pricing to compete with another seller. California said merely reducing or absorbing freight did not change the taxable measure.

The result differed if the vendor separately stated the actual freight paid or payable to the carrier and showed the rest of the total charge as the sales price. That remaining sales-price figure was the tax measure even though competition made it lower than the vendor's ordinary price.

This treatment applied only when the customer took title at the point from which the goods were shipped.

Common questions

Did merely absorbing freight reduce the tax measure?

No.

What invoice treatment supported the lower sales-price measure?

Separately stating actual carrier freight and showing the balance as the sales price.

What title condition applied?

The customer had to take title at the shipment point.

Source

Original ruling text

STATE OF CALIFORNIA

557.0460

STATE BOARD OF EQUALIZATION
December 20, 1954
This is in answer to your letter of December 3 concerning price adjustments made by your vendors in order to meet competition. If the vendor merely reduces or assumes the freight charges in order to equalize his price with his competitor, the measure of the tax would be unchanged. If, however, he separately states the actual freight paid or to be paid to the carrier, and shows the balance of the total charge as the sale price (which, in effect, is our understanding of what he does), the latter figure is the measure of the tax, even though it is less than it would be if the vendor did not have to meet his competitor’s price. It is, of course, understood that this measure of tax is correct only where the customer takes title to the property at the point from which shipment is made to him. EHS:ph

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