Rev. Rul. 58-408

Advice has been requested concerning the applicability of the retailers excise tax where jewelry is sold at retail under the conditions described below.

A retail jeweler mails so-called `gift certificates' to all of his customers of record. The `certificates' state that they will be honored in the amount of x dollars toward the purchase of any item of jewelry whose listed price is x or more dollars but that they are not negotiable for cash. A recipient of a `certificate' makes a purchase and receives a credit of x dollars toward the listed price, thus paying x dollars less than the listed price for the item of jewelry.

Section 4001 of the Internal Revenue Code of 1954 imposes a tax upon jewelry and related items based upon the price for which sold at retail.

Section 320.5 of Regulations 51, made applicable to the 1954 Code by Treasuryy Decision 6091, C.B. 1954-2, 47, provides that the retailer's sales price is the basis for the tax and that, in general, this should be the retailer's actual price at the point of distribution or sale.

It is held that, under the circumstances described above, the customer, in effect, is being given a discount of x dollars from the listed price of the item. The actual selling price thus becomes the listed price minus x dollars discount. Since the tax on jewelry and related items is based on the actual selling price, it follows that the tax should be based upon the net amount charged the customer for the item.