View all text of Subpart J [§ 53.91 - § 53.121]
§ 53.101 - Limitation on aggregate of exclusions and price readjustments.
(a) In general. The sum of the amount excluded from taxable price in respect of charges for local advertising, as provided in section 4216(e)(1) of the Code and § 53.100, plus the amount of the readjustments for which credits or refunds may be claimed in respect of local advertising, as provided in section 6416(b)(1) of the Code and § 53.175, is subject to an overall 5 percent limitation. This limitation applies to each manufacturer, as of the close of each calendar quarter, in respect of all articles taxable under the same section of chapter 32 of the Code which were sold by such manufacturer in such quarter (and the preceding quarter or quarters, if any, in the calendar year).
(b) Computation of overall 5 percent limitation—(1) In general. The limitation prescribed by section 4216(e)(2) of the Code (the “overall 5 percent limitation” referred to in paragraph (a) of this section) as to the total of the exclusions from price and readjustments of price which may be claimed for local advertising in respect of all articles taxable under the same section of Chapter 32 of the Code shall be computed as of the close of each calendar quarter of the calendar year. The overall 5 percent limitation is 5 percent of the difference between:
(i) The amount which would constitute the total taxable price (computed at the time of sale) of all articles taxable under the same section of chapter 32 of the Code sold by the manufacturer during the elapsed calendar quarters of the calendar year, if no part of any charge for local advertising were excludable in computing taxable price, and
(ii) The total of all amounts billed as separate charges for local advertising of such articles (whatever the amount of any single charge of the total of all charges).
(iii) In making the computations under paragraphs (b)(1) (i) and (ii) of this section, credits or refunds under section 6416(b) of the Code of tax paid on the sale of any such articles are to be disregarded and articles sold tax-free by the manufacturer are to be excluded. The amount by which the overall 5 percent limitation computed as of the close of a particular calendar quarter in respect of articles taxable under the same section of chapter 32 of the Code exceeds the sum of the charges for local advertising excluded in computing the taxable price and the amount of reimbursements for local advertising of such articles made during the elapsed calendar quarters of the calendar year, in respect of which credit or refund has been claimed, represents the unused portion of the overall 5 percent limitation. Such unused portion is the maximum amount of reimbursements for local advertising in respect of which credit or refund may be claimed at the close of the particular calendar quarter, subject to the applicable conditions and limitations governing the right to claim a credit or refund in respect of local advertising (see § 53.175). The unused portion of the overall 5 percent limitation as of the close of the fourth calendar quarter of a calendar year in respect of which credit or refund may not be claimed as of the close of such quarter must be disregarded in computing the overall 5 percent limitation for any subsequent calendar quarter. Moreover, the amount of any reimbursements for local advertising made by a manufacturer in a calendar year which is in excess of the amount of such reimbursements in respect of which credit or refund may be claimed, within the overall limitation, as of the close of the calendar year, may not subsequently serve as the basis for a credit or refund.
(2) Alternative method of computation in certain cases. If during the portion of the calendar year ending with the date as of which the overall 5 percent limitation is being computed the amount of the local advertising charge separately billed by the manufacturer has not, in respect of any sale of any articles taxable under the same section of chapter 32 of the Code, exceeded the amount excludable pursuant to § 53.100 in computing taxable price, the overall 5 percent limitation as of the close of a particular calendar quarter in respect of articles taxable under such section is 5 percent of the total taxable price (computed at the time of the sale) of all such articles sold taxpaid during the calendar year.
(3) Allocation of amounts paid in reimbursement of expenditures for local advertising. If a manufacturer makes contributions to a local advertising program in connection with which he makes excludable local advertising charges, it is necessary that reimbursements by the manufacturer for local advertising be attributed to the charges for local advertising, to the manufacturer's contributions, or allocated between them. Whether an amount paid by a manufacturer in reimbursement of expenses for local advertising is or is not a repayment of a local advertising charge which was excluded from taxable price under section 4216(e)(1) of the Code and § 53.100, shall be determined on the basis of an allocation made under the agreement between the manufacturer and his vendee (or any subsequent vendee).
(c) Examples. The application of paragraphs (a) and (b) of this section may be illustrated by the following examples:
Example (1).During the first and second calendar quarters of the year, a manufacturer makes sales of articles taxable under section 4181 to his distributors. The total charges for such sales, exclusive of the tax, transportation charges, delivery charges, or other charges which are excludable, pursuant to section 4216(a) of the Code, in computing taxable price, are as follows:| First Quarter: | Articles taxable under Section 4181 | $100,000 | Local advertising charges | 3,000 | Total Charges | 103,000 | Second Quarter: | Articles taxable under Section 4181 | $150,000 | Local advertising charges | 4,000 | Total Charges | 154,000 |
| Computation as of close of first calendar quarter: | 1. Amount which would constitute total taxable price (computed at time of sale) if no part of any charge for local advertising were excludable in computing taxable price | $103,000 | 2. Amounts billed as separate charges for local advertising | −3,000 | 3. Difference | 100,000 | 4. Overall 5 percent limitation (5 percent of item 3) | $5,000 | 5. Amount excluded in computing taxable price | −3,000 | 6. Unused portion of limitation | 2,000 | 7. Allocation, pursuant to agreement, of $5,500 paid to distributors: | Charges for local advertising | $3,000 | Contributions by manufacturer | $2,500 |
| Computation as of close of second calendar quarter: | 1. Amount which would constitute total taxable price (computed at time of sale) if no part of any charge for local advertising were excludable in computing taxable price ($103,000+$154,000) | $257,000 | 2. Amounts billed as separate charges for local advertising ($3,000+$4,000) | −7,000 | 3. Difference | 250,000 | 4. Overall 5 percent limitation (5 percent of item 3) | $12,500 | 5. Amount excluded in computing taxable price ($3,000+$4,000) plus readjustment claimed at end of first calendar quarter ($2,000) | −9,000 | 6. Unused portion of limitation | 3,500 | 7. Allocation, pursuant to agreement, of $6,500 ($5,500+$1,000) paid to distributors: | Charges for local advertising | $3,500 | Contributions by manufacturer | $3,000 |
| Total Charge: | Articles taxable under Section 4181 | $100,000 | Local advertising charges | 6,000 | Total charges | 106,000 |
| Computation as of close of first calendar quarter: | 1. Amount which would constitute total taxable price (computed at time of sale) if no part of any charge for local advertising were excludable in computing taxable price | $106,000 | 2. Amounts billed as separate charges for local advertising | −6,000 | d. Difference | 100,000 | 4. Overall 5 percent limitation (5 percent of item 3) | 5,000 | 5. Amount excluded in computing taxable price (see paragraph (c) of § 53.100 | −5,000 | 6. Unused portion of limitation | 0 | 7. Allocation, pursuant to agreement, of $3,000 paid to distributors: | Charges for local advertising | 2,000 | Contributions by manufacturer | 1,000 |