Did stored trade-in credits on cards or paper vouchers reduce the taxable price of a later retail purchase?

Plain-English summary

The retailer accepted used games and could apply the value immediately to a purchase, reserve a specific item, pay cash, or store the value on a card or paper voucher for later use.

Florida distinguished the immediate transactions from stored credit. A used item applied during the same sale, including a reservation of an identified item, could reduce the taxable sales price as a trade-in. But a card or voucher issued before any future merchandise was identified created a separate transaction.

The Department treated that stored value as a cash equivalent, analogous to a gift certificate. When redeemed later, it was payment rather than a same-sale trade-in, so sales tax applied to the full sales price of the later purchase.

What this means for you

The timing and linkage of the exchange matter. A trade-in credit may reduce tax when it is part of the same sale, but banked store credit for an unidentified future purchase may not.

Common questions

Did an immediate trade-in reduce the taxable price? Yes, when taken as part payment during the same sale.

What about value applied to a reservation? The ruling treated a reservation purchase of an identified out-of-stock or preorder item as part of the same transaction.

Did stored card or voucher value reduce a later taxable price? No. It was a cash equivalent redeemed in a separate sale.

Citations and references

• Fla. Stat. §§ 212.02(15), (16), 212.09(1), (2), and 672.401(1) and Fla. Admin. Code rr. 12A-1.074 and 12A-1.089, as discussed in the advisement.

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 09A-038

Original ruling text

SUMMARY
QUESTION:
Are credits on Taxpayer’s Cards and paper Trade-Ins excluded from the taxable sales price of
tangible personal property?
ANSWER:
Taxpayer’s procedures provide that the Cards and paper Trade-Ins are issued when a customer
will make a subsequent purchase. A subsequent purchase assumes that at the time of the trade-in
the customer has not identified, nor possessed, tangible personal property. Therefore, no sale is
contemplated at the time of the trade-in when Cards or paper Trade-Ins are issued.
The credits on Cards and paper Trade-Ins are not taken at the time of any sale. Therefore, there
are two discrete transactions. Taxpayer’s Card is a cash equivalent, and as such, tax is due on
the total sales price when the cash equivalent is redeemed, and the value of the Card does not
reduce the taxable sales price of the subsequent sale.
July 21, 2009
XXX
Re:

Technical Assistance Advisement 09A-038
Trade-Ins
Sales and Use Tax
Sections 212.02, 212.09, 672.401, Florida Statutes (F.S.)
Rule 12A-1.074, Florida Administrative Code (F.A.C.)
XXX XXX (“Taxpayer”)
FEIN: XXX

Dear XXX:
This is in response to your letter received April 21, 2009, requesting this Department’s issuance
of a Technical Assistance Advisement (TAA) pursuant to Section 213.22, F.S., and Rule Chapter
12-11, F.A.C., regarding the above referenced matter and parties. An examination of your letter
has established that you have complied with the statutory and regulatory requirements for
issuance of a TAA. Therefore, the Department is hereby granting your request for a TAA.
FACTS
Your letter provides in part:
Based in XXX, XXX, [Taxpayer] is an international retailer of new and used games
with over XXX stores across the world. The trade-in and sale of used merchandise is a
significant portion of the Company's business. This program allows customers to obtain a

Technical Assistance Advisement
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credit for trade-ins toward the purchase of new or used merchandise. The merchandise
traded-in goes through the used inventory process where it is tested and made marketable
to be resold. The games are then distributed to the stores where the demand is the greatest
and sold to retail customers.
When a customer brings in a used game, the trade-in is handled in one of five ways:
•
Immediately use the trade-in value on a purchase
•
Store the value as a reservation credit on a new game (possibly not in stock or not
yet released)
•
Obtain a paper Trade-In Credit for use on a subsequent purchase (replaced by
XXX XXX in XXX)
•
Obtain XXX XXX XXX (“Card”) that holds the trade-in value for a subsequent
purchase
•
Sell the game out right for cash. (Used games and accessories are purchased for
XXX% less than the trade-in value applied to a purchase, reservation or [a Card])
If [a Card] is issued, the customer can increase the trade-in value on the card
through a series of trades. This enables the customer to trade-in additional items over
time and build up enough trade-in value on the [Card] to purchase a new game or game
system with no cash outlay. We have attached a copy of [a Card] as Exhibit I. . . .

The [Card] is provided to the customer at no cost. A discount subscription is also
available and allows its holder to receive a XXX% discount on all used games, used
accessories, strategy games, and a XXX% bonus trade-in credit. The discount
subscription is sold on a stand alone basis. . . . The [Card] is not a debit or credit card, has
no cash value, and may not be transferred or applied as a payment to any account.
When a sale is made to a customer that holds [a Card] with trade-in value, the
Company reduces the sales price by the amount of the trade-in stored on the card up to
the full amount of the sales price. The tax charged on that transaction is reduced
accordingly.
A paper Trade-In Credit was the predecessor to the [Card]. The [Card] replaced the paper
Trade-In Credit beginning in XXX XXX, although paper Trade-in Credits issued prior
to that date are still accepted. Paper Trade-In Credits were handled in the same manner as
the [Card] except the customer received a voucher for each visit where a game was
traded-in and not fully applied to a purchase. The [Card] combined this series of trade-ins
into a single vehicle that held the value of all the trade-ins.

ISSUE
Are credits on Cards and paper Trade-Ins excluded from the taxable sales price of tangible
personal property?

Technical Assistance Advisement
Page 3 of 6
ADVISEMENT REQUESTED
Your letter provides in part:
Since we do not see any material difference between the two, we request that the TAA be
based on the [Card] as it represents the current trade-in program. If the Department
feels that the paper Trade-In Credit and the [Card] should be treated differently, we
request that the Department provide an advisement on the paper Trade-In Credit in the
same manner requested for the [Card].
Is reducing the sales price, as described under Section 212.02(16), F.S., by accepting the
trade-in value stored on an [Card] from one trade-in or from a "series of trades", as
described under Section 212.09(1) & (2), F.A.C., the appropriate treatment when
calculating sales tax on a transaction?

Support of Our Position
It is our belief that for [a Card] to be considered a valid trade-in there are two criteria that
must be met. The trade-ins that occur over time are valid as trade-ins and the trade-ins are
"taken at the time of sale".
Validity of the [Card] as a Trade-in: Section 212.02(16), F.S.[,] allows for a reduction
in the sales price for trade-ins. Section 212.09(1) & (2), F.S.[,] clarifies the treatment of
trade-ins by stating that the sales price will be reduced based on a credit for used articles
that "are taken in trade or a series of trades". It is clearly the State's intent to allow one
trade or a "series of trades" to reduce the sales price accordingly and the value on [a
Card] represents credit from one trade or a series of trades. Therefore, the value on the
[Card] represents a valid trade in(s).
Timing of trade-in with the sale: The remaining issue is whether the trade-in is "taken at
the time of sale". Does that mean that all trade-ins must occur at the time of the sale or
that the reduction in sales price must be taken at the time of the sale? If all trade-ins must
occur at the time of the sale, then Section 212.09(1) & (2), F.S.[,] would not make the
distinction that a "series" of trades reduce the sales price. The word series is defined by
Merriam-Webster's online dictionary as "a number of things or events of the same class
coming one after another in spatial or temporal succession." By definition, a series of
trades cannot occur at the same time. Therefore, a series of trades cannot occur at the
same time as the sale but can be "taken" at the same time as the sale. This is further
supported by the State's position on trade discounts in Rule 12A-1.018(2), F.A.C.:
Trade-ins or discounts allowed and taken at the time of sale are deducted from the
selling price, and the tax is due on the net amount paid at the time of sale.
Discounts granted for payment within a specified period or upon a specified later
date are not deemed discounts at the time of sale, and may not be deducted from
the selling price for purposes of computing the tax.
The Department is making a distinction between reductions to the sales price at the time
of the sale and discounts provided after the sale has taken place. In Rule 12A-1.018, the

Technical Assistance Advisement
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Department is confirming our position and, at the same time, interpreting the law such
that a deduction for timely payment does not decrease the sales price. Therefore, [the
Card] represents a trade-in taken at the time of sale and the sales price can be reduced by
value on the [Card].
APPLICABLE AUTHORITY
Section 212.02(15), F.S., provides in part:
"Sale" means and includes: (a) Any transfer of title or possession, or both . . . of tangible
personal property for a consideration.
Section 212.02(16), F.S., provides in part:
"Sales price" means the total amount paid for tangible personal property, including any
services that are a part of the sale, valued in money, whether paid in money or otherwise,
and includes any amount for which credit is given to the purchaser by the seller, without
any deduction there from on account of the cost of the property sold, the cost of materials
used, labor or service cost, interest charged, losses, or any other expense whatsoever.
"Sales price" also includes the consideration for a transaction which requires both labor
and material to alter, remodel, maintain, adjust, or repair tangible personal property.
Trade-ins or discounts allowed and taken at the time of sale shall not be included within
the purview of this subsection. . . . (Emphasis supplied.)
Section 212.09(1) and (2), F.S., provide:
(1) Where used articles, accepted and intended for resale, are taken in trade, or a series of
trades, as a credit or part payment on the sale of new articles, the tax levied by this
chapter shall be paid on the sales price of the new article, less the credit for the used
article taken in trade.
(2) Where used articles, accepted and intended for resale, are taken in trade, or a series of
trades, as a credit or part payment on the sale of used articles, the tax levied by this
chapter shall be paid on the sales price of the used article less the credit for the used
article taken in trade.
Rule 12A-1074(1) and (2), F.A.C., provides in part:
(1) Where used articles of tangible personal property, accepted and intended for resale,
are taken in trade, or a series of trades, at the time of sale as a credit or part payment on
the sale of new articles of tangible personal property, the tax levied by Part I of Chapter
212, F.S. shall be paid on the sales price of the new article of tangible personal property,
less credit for the used article of tangible personal property taken in trade. A separate or
independent sale of tangible personal property is not a trade-in, even if the proceeds from
the sale are immediately applied by the seller to a purchase of new articles of tangible

Technical Assistance Advisement
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personal property.
(2) Where used articles of tangible personal property, accepted and intended for resale,
are taken in trade, or a series of trades, at the time of sale as a credit or part payment on
the sale of used articles, the tax levied by Part I of Chapter 212, F.S., shall be paid on the
sales price of the used article of tangible personal property, less credit for the used
articles
of tangible personal property taken in trade. A separate or independent sale of
tangible
personal property is not a trade-in, even if the proceeds from the sale are
immediately applied by the seller to a purchase of new articles of tangible personal property.
Section 672.401(1), F.S., provides in part:
Title to goods cannot pass under a contract for sale prior to their identification to the
contract . . . .
RESPONSE
In Florida, the sale of tangible personal property is subject to tax. See Section 212.05, F.S. The
tax is due on the “sales price.” See Section 212.02, F.S. By definition, the sales price includes
services that are part of the sale of tangible personal property and credit given to a purchaser.
However, the definition of “sales price” expressly excludes trade-ins taken at the time of sale.
Rule 12A-1.074, F.A.C., further provides that when used tangible personal property is taken in
trade, or a series of trades, at the time of sale then the sales price of a new or used article of
tangible personal property should be reduced by the trade in credit.
First, the above statutes and rule provide that only trade-ins taken at the time of sale are reduced
from the taxable amount. Here, trade-ins may be applied immediately to a new purchase or to a
reservation purchase of a new item that is out of stock or for preorder. These two types of tradeins are taken at the time of the sale of new items, because these trade-ins and sales occur during
and as a part of the same transaction. Therefore, the credit from these two types of trade-in
would reduce the taxable sales price by the amount of the credit.
However, the credits given on Cards and paper Trade-Ins are applied to future purchases.
Section 212.02(15), F.S., defines a sale as the transfer of title, possession, or both of tangible
personal property for consideration. Further, Section 672.401(1), F.S., provides that title cannot
pass unless the tangible personal property is identified. Therefore, the credits in question cannot
be part of the same transaction as any future sale. Taxpayer’s procedures above provide that the
Cards and paper Trade-Ins are issued when a customer will make a subsequent purchase. A
subsequent purchase assumes that at the time of the trade-in the customer has not identified, nor
possessed, tangible personal property. Therefore, the future sale has not been executed at the
time of the trade-in when Cards or paper Trade-Ins are issued.
Further, the Card is analogous to a gift certificate sold by any retailer. See Rule 12A-1.089,
F.A.C. Taxpayer’s Card is a cash equivalent, and as such, tax is due on the total sales price
when the cash equivalent is redeemed.

Technical Assistance Advisement
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Second, Taxpayer argues that a “series of trades” may never be at a specific moment in time.
While a series of trades may be contemplated during a single sale transaction, those are not the
facts presented here. Taxpayer’s customer receives trade-in credit on a Card before a subsequent
sale is executed. Therefore, there are two discrete transactions. Customer receives a store credit
on a Card once they transfer title and possession of used tangible personal property to Taxpayer.
Then at some later date, Customer redeems the cash equivalent on the Card to effectuate the sale
of other tangible personal property.
In conclusion, the credits on Cards and paper Trade-Ins are not taken at the time of any future
sale. Therefore, the value of the Card does not reduce the taxable sales price of any future, or
later, sales.
This response constitutes a Technical Assistance Advisement under Section 213.22, F.S., which
is binding on the Department only under the facts and circumstances described in the request for
this advice as specified in Section 213.22, F.S. Our response is predicated on those facts and the
specific situation summarized above. You are advised that subsequent statutory or administrative
rule changes, or judicial interpretations of the statutes or rules, upon which this advice is based,
may subject similar future transactions to a different treatment than expressed in this response.
You are further advised that this response, your request and related backup documents are public
records under Chapter 119, F.S., and are subject to disclosure to the public under the conditions
of Section 213.22, F.S. Confidential information must be deleted before public disclosure. In an
effort to protect confidentiality, we request you provide the undersigned with an edited copy of
your request for Technical Assistance Advisement, the backup material and this response,
deleting names, addresses and any other details which might lead to identification of the
taxpayer. Your response should be received by the Department within 15 days of the date of this
letter.
Sincerely,

H. French Brown, IV
Attorney
Technical Assistance and Dispute Resolution
(850) 922-4708
Record ID: 63445