California Code of Regulations › Title 18 - Public Revenues › Division 2 - California Department of Tax and Fee Administration- Business Taxes (State Board of Equalization- Business Taxes, See Ch. 6 and 9.9) › Chapter 4 - Sales and Use Tax › Article 14 - Exchanges, Returns, Defects › Section 1655 - Returns, Defects and Replacements

Current through Register 2024 Notice Reg. No. 28, July 12, 2024
(a) Returned Merchandise.
(1) In General. Except as provided in
				  paragraph (2) of this subdivision, the amount upon which tax is computed does
				  not include the amount charged for merchandise returned by customers if, (1)
				  the full sale price, including that portion designated as "sales tax," is
				  refunded either in cash or credit, and (2) the customer, in order to obtain the
				  refund or credit, is not required to purchase other property at a price greater
				  than the amount charged for the property that is returned. Refund or credit of
				  the entire amount is deemed to be given when the purchase price, less
				  rehandling and restocking costs, is refunded or credited to the customer. The
				  amount withheld for rehandling and restocking may not exceed the actual cost of
				  rehandling and restocking the returned merchandise. However, in lieu of using
				  the actual cost for each transaction, the amount withheld for rehandling and
				  restocking may be a percentage of the sales price determined by the average
				  cost of rehandling and restocking returned merchandise during the previous
				  accounting cycle (generally one year). If the seller elects to withhold
				  rehandling and restocking amounts based on a percentage of sales price, the
				  seller is bound by that election for the entire accounting cycle for which the
				  election is made and must apply that percentage in lieu of actual cost during
				  that period on all returned merchandise transactions for which rehandling and
				  restocking costs are withheld. The amount withheld as rehandling and restocking
				  costs may not include compensation for increased overhead costs because of the
				  return, for refinishing or restoring the property to salable condition where
				  the necessity therefore is occasioned by customer usage, or for any expense
				  prior to the "sale" (i.e., transfer of title, lease, or possession under a
				  conditional sale contract). Sellers must maintain adequate records which may be
				  verified by audit, documenting the percentage used.
(2) Contract Cancellation Options Required by
				  Car Buyer's Bill of Rights.
(A) Contract
				  Cancellation Option. On and after July 1, 2006, the terms "gross receipts" and
				  "sales price" do not include the purchase price for a contract cancellation
				  option agreement with respect to a contract to purchase a used vehicle with a
				  purchase price of less than forty thousand dollars ($40,000), which a dealer is
				  required to offer to a buyer pursuant to Vehicle Code section
				  11713.21. The
				  purchase price for a contract cancellation option described in this
				  subparagraph shall not exceed:
1.
				  Seventy-five dollars ($75) for a vehicle with a cash price of five thousand
				  dollars ($5,000) or less;
2. One
				  hundred fifty dollars ($150) for a vehicle with a cash price of more than five
				  thousand dollars ($5,000), but not more than ten thousand dollars
				  ($10,000);
3. Two hundred fifty
				  dollars ($250) for a vehicle with a cash price of more than ten thousand
				  dollars ($10,000), but not more than thirty thousand dollars ($30,000);
				  or
4. One percent of the purchase
				  price for a vehicle with a cash price of more than thirty thousand dollars
				  ($30,000), but less than forty thousand dollars ($40,000).
(B) Restocking Fee. On and after July 1,
				  2006, the terms "gross receipts" and "sales price" do not include the dollar
				  amount of a restocking fee the buyer must pay to the dealer to exercise the
				  right to cancel a purchase of a used car under a contract cancellation option
				  agreement pursuant to Vehicle Code section
				  11713.21 as
				  described in subparagraph (A) of this paragraph. The dollar amount of a
				  restocking fee described in this subparagraph shall not exceed:
1. One hundred seventy-five dollars ($175) if
				  the vehicle's cash price is five thousand dollars ($5,000) or less;
2. Three hundred fifty dollars ($350) if the
				  vehicle's cash price is more than five thousand dollars ($5,000), but less than
				  ten thousand dollars ($10,000); or
3. Five hundred dollars ($500) if the
				  vehicle's cash price is ten thousand dollars ($10,000) or
				  more.
(C) Amounts
				  Refunded to Customers. On and after July 1, 2006, the terms "gross receipts"
				  and "sales price" do not include that portion of the selling price for a used
				  motor vehicle that is refunded to the buyer due to the buyer's exercise of the
				  right to return the vehicle for a refund, which is contained in a contract
				  cancellation option agreement pursuant to Vehicle Code section
				  11713.21 as
				  described in subparagraph (A) of this paragraph.