2501007 Informal Interpretation

Date

January 31, 2025

Rule

801.11

Staff

Kathryn Walsh

Response/Comments

That interpretation is very old. Our current position is that any deduction for taxes from the revenues must be in a line item. If not in a line item, the revenues in the financials stand as stated.

Original Image - 2501007 Informal Interpretation (238.79 KB)

Question

From: Walsh, Kathryn E.
Sent: Friday, January 31, 2025 12:39:33 PM (UTC-05:00) Eastern Time (US & Canada)
To: [Redacted]
Cc: HSRHelp
Subject: FW: Question regarding net sales calculation

That interpretation is very old. Our current position is that any deduction for taxes from the revenues must be in a line item. If not in a line item, the revenues in the financials stand as stated.

From: [Redacted]
Sent: Tuesday, January 28, 2025 4:52:13 PM (UTC-05:00) Eastern Time (US & Canada)
To: HSRHelp
Cc: [Redacted]
Subject: Question regarding net sales calculation

Dear PNO,
I have two questions regarding the net sales calculation for the Size-of-Person test. Our client offers an application on app stores (e.g., Apple, Google). Users download the application and pay a subscription fee through the app store. The client and app store providers have agreed that the client will pay a fixed percentage of user subscription revenue to the app store providers, which host the application for downloading (“store fees”). The app store providers act as merchants for the client: they collect subscription fees from users and pay our client the subscription revenue less taxes and store fees. The store fees are noted as direct costs in the client’s financials.
1. In Interpretation 0605007 (2006), the PNO indicated that a party, which published online content for publishers, could exclude the portion of revenues that was paid to publishers. Based on this interpretation, we believe that the store fees, which are collected by the app store provider and never paid out to our client, should be excluded from the client’s net sales calculation. Can you please confirm that we can exclude the store fees from the net sales calculation?
2. A portion of the client’s revenue is taxes paid by users, which is collected by the app store provider. We understand that “net sales” means “gross revenues less returns, discounts, excise taxes, and the like.” See The Statement of Basis and Purpose at 43 Fed. Reg. 33472-73. In this instance, the client does not receive the taxes paid by user; rather the taxes are paid to and collected by the app store provider. Can you please confirm that we can exclude the tax revenue from the net sales calculation?

Sheinberg, Samuel I.
From: 	HS RHe lp
Sent: 	Friday, January 31, 2025 12 :40 PM
To : 	HS R Auto Forward List
Subject: 	FW : Question regard i ng net sales calcu lation
From: Wals h, Kathryn E.
Sent: Friday, January 31, 2025 12:39: 33 PM ( UTC-05:00) Eastern Time (US & Canada)
To: regina
Cc: HSRHe lp
Subject: FW: Question regarding net sa les calculation
That i nt erpretation is ve ry old. Our current posit ion is th at any de du ct ion fo r t axes fr om t he revenues mu st be in a line
it em . If not in a line it em, t he revenues in the fi nanci als st and as stated.
From:
Sent: Tuesday, January 28, 2025 4:52:13 PM (UTC-05:00) Eastern Ti me (US & Canada}
To : HSRH elp
Cc:
Subject: Question regardi ng net sa les calcu lation
Dea r PNO,
I have two questions regarding the net sales calculat ion fo r t he Size-of-Person test. Ou r cli ent offers an application
on app stores (e.g., Apple, Google}. Use rs down load the application and pay a subscription fee through t he app
store. The client and app store providers have agreed that t he client will pay a fixed percentage of user
subscri ptio n revenue to t he app store providers, wh ic h host t he application fo r dow nloadi ng ("store fees"}. The
app store providers act as merchants for t he client: t hey collect su bscr i pt ion fees from users and pay our client
the su bsc r ipt ion revenue less taxes and store fees. The store fees are noted as direct costs in the clien t's
fi nancials.
1. 	In Interpretation 0605007 (2006), t he PNO in dicated t hat a party, which published on line content fo r
publishers, cou ld exclude the portion of revenues t h at was paid to publishers. Based on t his interpretation,
we believe that t he store fees, w hich are collected by the app store provider and never paid out to our
client, should be excluded from the cli ent's net sales calculation. Can you please confirm that we can
exclude the store fees from t he net sales calc ulation?
2. 	A portio n of t he clien t's revenue is taxes paid by users, which is co ll ected by t he app store provider. We
understa nd that "net sales" means "gross revenues less returns, discou nts, excise taxes, and the like."
See The Statement of Basis and Purpose at 43 Fed. Reg. 33472-73. In th is instance, t he client does not
receive the taxes pa id by use r; ra the r the taxes are paid to and collected by t he app store provider. Can you
please confi rm that we can exclude t he tax revenue from the net sales calc ulation?
Thank you,
1

2501007 Informal Interpretation

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