Rev. Rul. 58-348

Advice has been requested whether credit or refund of retailers excise tax is allowable to a retailer under the circumstances described below.

It is a common practice for prospective brides to register their silverware patterns with retail establishments. The purpose of this practice is to enable the retailer to advise purchasers of gifts for the bride to select those which do not duplicate other purchases or to confine their choices to silverware of the registered pattern. Despite this, it frequently happens that the bride receives duplicate gifts or gifts of patterns which do not match her own. Accordingly, it is the general custom and usage in the trade, or in any case there may be a specific agreement to that effect between the retailer and the purchaser, to permit the donee (the bride) to return the article given to her and to select another item in its place, or to receive in cash an amount equal to the tax-included purchase price of the article.

Section 320.74(b) and (c) of Regulations 51, made applicable to the Internal Revenue Code of 1954 by Treasury Decision 6091, C.B. 1954-2, 47, provides for the allowance of credit or refund of retailers excise tax paid with respect to the sale of an article where, prior to its use, the sale is rescinded by a return of the article to the retailer and refund or credit of the amount of the purchase price, including tax, is made to the purchaser.

It is held that the situations described above come within the purview of this section of the regulations. Accordingly, where an article purchased as a gift is returned to the retailer by the donee because of a duplication or for other valid reasons, the return of the article prior to use and a refund or credit to the donee of the entire tax-included selling price entitles the retailer to a credit or refund of the tax paid.

If the article is returned by the donee prior to use and the donee is allowed credit for the entire tax-included purchase price in an exchange of the article for another taxable article, tax will attach to the full price of the second article including the allowance made with respect to the returned article. In such case, the retailer is entitled to a credit or refund of the tax paid with respect to the first or returned article.

While this situation occurs most commonly in the case of brides, it is not intended that the principles stated in this Revenue Ruling be confined wholly to wedding or engagement gifts. The same principles may be applied to other comparable situations involving the return of gifts prior to use, for example Christmas gifts, graduation gifts, confirmation gifts, etc.