Laws, Regulations & Annotations

Business Taxes Law Guide – Revision 2018

Sales And Use Tax Court Decisions

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Sperry & Hutchinson Co.; Botney v. . . . (1976)

Method of Establishing Value of Trading Stamps Approved

Regulation 1671 defines the selling price, for sales tax purposes, of goods exchanged for trading stamps as being the average amount paid to the trading stamp operator by its customers for the stamps surrendered in exchange for the goods. That regulation further provides that the amount the operator pays as tax must not be less than the amount of tax reimbursement it collects from its customers. The defendant trading stamp operator in this case, Sperry & Hutchinson Co. (S & H), had collected sales tax reimbursement and paid sales tax on the basis of $3.00 per book of 1200 stamps. S & H catalogs and stamp books stated that sales tax on redemption would be based on $3.00 per book. The $3.00 figure approximated the average amount paid to defendant for the stamps, without taking into account certain cash rebates and extra stamps given to customers.

Plaintiffs brought a class action claiming that defendant had overcollected sales tax reimbursement by failing to include the cash rebates and extra stamps in calculating the average price. Defendant cross-complained against the Board for indemnification in the event plaintiffs prevailed. The court of appeal upheld the trial court in finding that the method of calculation used was justified since the rebates or free stamps were given only in exchange for services rendered such as promotional advertising, guaranteed large distributions, and other services, and were not reductions in the selling price of the stamps. Botney v. Sperry & Hutchinson Co. (1976) 55 Cal.App.3d 49.