Laws, Regulations & Annotations
Business Taxes Law Guide – Revision 2013
Sales and Use Tax Annotations
490.0000 RETURNS, DEFECTS AND REPLACEMENTS—Regulation 1655
(a) RETURNED MERCHANDISE
(1) In General
490.0035 Merchandise Returned After Extended Use. A telephone company introduces a new line of telephones in touch-tone or rotary dial modes. The telephone company transfers title only to the telephone housing and not to the communications apparatus contained therein. The housing that accommodates the rotary dial features will not accommodate touch-tone and the housings are not, therefore, interchangeable. A touch-tone telephone is useless in a telephone service area with exclusive rotary dial service.
To maintain customers' goodwill, the telephone company has voluntarily adopted the policy of exchanging the customers' used touch-tone model (including both the housing and the communication apparatus contained therein) for an otherwise identical new rotary model completely without charge when the customer moves to a telephone service area with rotary dial service only. This exchange policy applies regardless of when the customers purchased the new line telephones, or the service area is serviced by another telephone company, or the customers move to another state or to a foreign country.
This exchange policy does not apply to customers moving into a touch-tone service area as rotary models are entirely compatible with touch-tone service. The exchange for a new rotary model is of the identical color, design and price as the exchange telephone (unless a price change had been effected during interim in which event there is still no charge). Under the above circumstances, the exchange of the new line touch-tone telephone for a new line rotary telephone is regarded as a returned merchandise transaction. The selling price of the replacement new line rotary telephone must equal or exceed the selling price (inclusive of sales tax) of the new line touch-tone model so that the customer receives full credit for the sales price for the touch-tone model.
Although it could be argued that this transaction should be treated as a trade-in transaction, since the customer may have the use of a touch-tone model telephone for an extended period of time prior to the exchange and since the exchange transaction occurs because of a change in circumstances of the customer which causes the customer to need a new and different item of property, this transaction is better treated as a returned merchandise transaction. Of particular importance is the fact that the customer receives credit for the full purchase price of the returned item and not merely an allowance in accordance with the depreciated value of the item based upon its usage. 7/21/75.