Rev. Rul. 56-515

Advice has been requested whether the retailers excise tax applies to a so-called `service charge' (or `finance' or `carrying' charge) added by a retail dealer to the selling price of taxable articles when they are sold on credit or under an installment payment plan.

The retailers excise tax is based upon the price for which an article is sold at retail, subject to certain inclusion and exclusions set forth in section 4051 of the Internal Revenue Code of 1954. Whether a `service charge' is to be included in or excluded from the selling price on which the tax is based is a question of fact to be determined from the circumstances of each case.

Where a retail dealer adds to the price of an article a charge for the privilege of purchasing the article on credit or under an installment payment plan, such charge is considered to be a part of the selling price of the article on which the tax is to be computed, notwithstanding the fact that such amount may be set forth as a separate item. See Berman's Jewelry Store, Inc. v. United States , 198 Fed.(2d) 675. On the other hand, where the charge made by the retailer is computed at the legal rate of interest, based on the unpaid balance of the account and the length of time agreed upon for payment of that balance, and is refundable in proportion to any accelerated payment of the account made by he customer, it is considered a bona fide finance or carrying charge and may be excluded from the tax base, provided it is shown as a separate item on the invoice furnished the customer or may be readily determined from the records of the retailer.