Internal Revenue Service
Revenue Ruling

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 Rev. Rul. 69-61

1969-1 C.B. 57

Sec. 164

Sec. 266

IRS Headnote

The gross receipts (sales) and use taxes imposed under Articles 10 and 11, Title 51, Code of Alabama are deductible by the purchaser or consumer who pays the tax.

Full Text

Rev. Rul. 69-61

Advice has been requested whether the Alabama gross receipts (sales) tax and the Alabama use tax are deductible by the consumer under section 164(a)(4) of the Internal Revenue Code of 1954.

Section 786(3), Article 10, Title 51, Code of Alabama, provides in part as follows:

"There is hereby levied, in addition to all other taxes of every kind now imposed by law, and shall be collected as herein provided, a privilege or license tax against the person on account of the business activities and in the amount to be determined by the application of rates against gross sales, or gross receipts, as the case may be, as follows:

"(a) Upon every person, firm or corporation * * * engaged, or continuing within this state, in business of selling at retail any tangible personal property whatsoever, including merchandise and commodities of every kind and character, * * * an amount equal to four percent of the gross proceeds of sales of the business except where a different amount is expressly provided herein. * * *."

The last sentence of section 786(25) states:

"All taxes paid in pursuance to this article or any other statute enacted in this connection shall conclusively be presumed to be a direct tax on the retail consumer, pre-collected for the purpose of convenience and facility only."

With respect to the Alabama use tax, section 788, Article 11, Title 51, Code of Alabama, provides, with certain exceptions and limitations, that an excise tax is imposed on the storage, use, or other consumption in the state of tangible personal property purchased at retail for storage, use, or other consumption in the state at the rate of four percent of the sales price of such property.

Under section 791, every vendor of tangible personal property for storage, use, or other consumption in the state is required to collect the tax from the purchaser and give to the purchaser a receipt therefor. The tax is to be stated separately from the list, advertised in the premises, marked or other price on the sales check or other proof of sales.

Section 164(a) of the Code sets forth the general rule that State and local general sales taxes shall be allowed as a deduction for the taxable year within which paid or accrued.

The term "general sales tax" is defined in section 164(b)(2)(A) of the Code as meaning a tax imposed at one rate in respect of the sale at retail of a broad range of classes of items.

Section 1.164-1(a) of the Income Tax Regulations provides that, in general, taxes are deductible only by the person upon whom they are imposed.

Under section 164(b)(2)(D) of the Code, a compensating use tax in respect of an item shall be treated as a general sales tax. The term "compensating use tax" means, in respect of any item, a tax which is imposed on the use, storage, or consumption of such item and which is complementary to a general sales tax which is deductible with respect to sales of similar items.

Since the Alabama sales tax and the use tax are imposed at one rate in respect of the sale at retail of a broad range of classes of items, they are, respectively, a "general sales tax" as defined in section 164(b)(2)(A) of the Code and a "compensating use tax" within the meaning of section 164(b)(2)(D) of the Code.

Although the language in section 863(3) of the Code of Alabama appears to impose the sales tax on the dealer, section 786(25) indicates that the intent and purpose of the legislature was to impose the tax on the retail consumer.

Accordingly, the gross receipts (sales) tax and the use tax imposed by the State of Alabama under Articles 10 and 11 of the Code of Alabama are deductible under section 164(a)(4) of the Code by the purchaser or consumer who pays the tax. However, where the sales tax or use tax is paid or accrued by an individual other than in connection with a trade or business carried on by him, it is deductible only if the standard deduction or the optional tax table is not used. These taxes may not be capitalized except as provided in section 266 of the Code.