(a) A taxpayer who is on an accrual method of accounting may elect not to include in the gross income for the taxable year the income attributable to the qualified sale of any magazine, paperback, or record which is returned to the taxpayer before the close of the merchandise return period. (b) For purposes of this sectionâ (1) The term âmagazineâ includes any other periodical. (2) The term âpaperbackâ means any book which has a flexible outer cover and the pages of which are affixed directly to such outer cover. Such term does not include a magazine. (3) The term ârecordâ means a disc, tape, or similar object on which musical, spoken, or other sounds are recorded. (4) If a taxpayer makes qualified sales of more than one category of merchandise in connection with the same trade or business, this section shall be applied as if the qualified sales of each such category were made in connection with a separate trade or business. For purposes of the preceding sentence, magazines, paperbacks, and records shall each be treated as a separate category of merchandise. (5) A sale of a magazine, paperback, or record is a qualified sale ifâ (A) At the time of sale, the taxpayer has a legal obligation to adjust the sales price of such magazine, paperback, or record if it is not resold, and (B) The sales price of such magazine, paperback, or record is adjusted by the taxpayer because of a failure to resell it. (6) The amount excluded under this section with respect to any qualified sale shall be the lesser ofâ (A) The amount covered by the legal obligation described in paragraph (5)(A), or (B) The amount of the adjustment agreed to by the taxpayer before the close of the merchandise return period. (7) (A) Except as provided in subparagraph (B), the term âmerchandise return periodâ means, with respect to any taxable yearâ (i) In the case of magazines, the period of 2 months and 15 days first occurring after the close of the taxable year, or (ii) In the case of paperbacks and records, the period of 4 months and 15 days first occurring after the close of the taxable year. (B) The taxpayer may select a shorter period than the applicable period set forth in subparagraph (A). (C) Any change in the merchandise return period shall be treated as a change in the method of accounting. (8) As prescribed by the Franchise Tax Board, the taxpayer may substitute, for the physical return of magazines, paperbacks, or records required by subdivision (a), certification or other evidence that the magazine, paperback, or record has not been resold and will not be resold if such evidenceâ (A) Is in the possession of the taxpayer at the close of the merchandise return period, and (B) Is satisfactory to the Franchise Tax Board. (9) A repurchase by the taxpayer shall be treated as an adjustment of the sales price rather than as a resale. (c) (1) This section shall apply to qualified sales of magazines, paperbacks, or records, as the case may be, if and only if the taxpayer makes an election under this section with respect to the trade or business in connection with which such sales are made. An election under this section may be made without the consent of the Franchise Tax Board. The election shall be made in such manner as the Franchise Tax Board may prescribe and shall be made for any taxable year not later than the time prescribed by law for filing the return for such taxable year (including extensions thereof). (2) An election made under this section shall apply to all qualified sales of magazines, paperbacks, or records, as the case may be, made in connection with the trade or business with respect to which the taxpayer has made the election. (3) An election under this section shall be effective for the taxable year for which it is made and for all subsequent taxable years, unless the taxpayer secures the consent of the Franchise Tax Board to the revocation of such election. (4) Except to the extent inconsistent with the provisions of
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