Rev. Rul. 63-5

Advice has been requested whether, in determining the price for which taxable articles are sold for purposes of computing the retailers excise taxes, a retailer may deduct from the price charged for the articles an amount equal to the cost of trading stamps given with the articles.

A retailer sells various articles of merchandise, some of which are subject to the retailers excise taxes. With each sale of merchandise, the retailer gives to the customer a certain number of trading stamps. These trading stamps may be exchanged for so-called `premium' merchandise.

The retailer has determined that a certain percentage of the price for which he sells an article represents his cost of the trading stamps given with that article. This percentage normally is about two percent of the price for which he sells the article, exclusive of the retailers excise tax. Specifically, the question presented is whether the retailer may deduct an amount equal to this percentage of his tax-excluded price of a taxable article in determining the base for the retailers excise tax. For example, if he sells an article for $20.00 plus tax, may he deduct two percent of that price (or 40 cents) and compute the tax on the balance of $19.60?

Sections 4001, 4011, 4021, and 4031 of the Internal Revenue Code of 1954 impose taxes upon the sale at retail of jewelry and related items, fur articles, toilet preparations, and luggage, handbags, etc., respectively. The tax is based upon the price for which the articles are sold by the retailer.

Section 4051 of the Code provides that, in determining the price for which an article is sold, for purposes of the retailers excise taxes, there shall be included any charge for coverings and containers of whatever nature and any charge incident to placing the article in condition packed ready for shipment. That section further provides that a transportation, delivery, insurance, installation, or other charge (not required by the foregoing sentence to be included) shall be excluded from the price only if the amount thereof is established to the satisfaction of the Secretary of the Treasury or his delegate, in accordance with the regulations.

Section 320.5(a) of Regulations 51, made applicable to the 1954 Code by Treasury Decision 6091, C.B. 1954-2, 47 states that the sale price is, in general, the retailer's actual price at the point of distribution or sale.

Section 320.8 of the regulations states that charges for transportation, delivery, insurance, installation, and other charges actually incurred in connection with the delivery of an article to a purchaser pursuant to a bona fide sale, are to be excluded in computing the tax.

The portion of the retailer's price which is attributable to the cost of trading stamps is not considered to be a charge which is excludable in determining the price for which an article is sold, under the provisions of section 4051 of the Code. Rather, the cost of the trading stamps is in the same category as a selling or advertising cost which is taken into account by the retailer, along with other costs attributable to an article, in establishing the retailer's actual price at the point of distribution or sale.

Therefore, it is held that, in determining the price for which taxable articles are sold for purposes of computing the retailers excise taxes, the retailer in the instant case may not deduct from the price charged for the articles an amount equal to the cost of trading stamps given with the articles. Accordingly, in the example presented, the tax applies to the tax-excluded price of $20.00 charged by the retailer for the taxable article.