Laws, Regulations & Annotations
Business Taxes Law Guide – Revision 2014
Sales and Use Tax Annotations
490.0000 RETURNS, DEFECTS AND REPLACEMENTS—Regulation 1655
(d) DEFECTIVE MERCHANDISE
490.0820 Trade-In Allowance. A battery with a 24-month guarantee is purchased for $20 plus 60¢ tax. The battery fails at the end of 12 months. The customer returns the defective battery, worth $1 as junk, and is given a defective merchandise allowance of $10. A new battery is sold to the customer for $10 plus 30H tax. In computing gross receipts the retailer should regard the $1 junk value of the defective battery as a trade-in allowance and the remaining $9 as a defective merchandise allowance. In the alternative, the defective merchandise allowance could be regarded as $10 provided the trade-in value of $1 is added to the taxable gross receipts from the second sale. 6/25/58.