Discussion Archives:Can prizes be included in cost of sales?

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Discussion Forum Index --> Advanced Tax Questions --> Can prizes be included in cost of sales?

Discussion Forum Index --> Tax Questions --> Can prizes be included in cost of sales?

APL1 (talk|edits) said:

26 June 2008
One company I work for is a company that has developed a program to track results from amateur poker tournaments. Their revenue is from fees paid by venues to use their software and programs to track results of the players. The basic membership fee for a player is free, but the player may upgrade to an enhanced membership. The players earn points based on how well they do in the games. These points can be redeemed for prizes; bigger prizes with the enhanced memberships.

Can the company include the cost of these prizes in Cost of Goods Sold, or are the prizes just promotional/advertising cost?

CrowJD (talk|edits) said:

26 June 2008
This is the old S&H Poker Stamp Scheme (which preceded the S&H Green Stamps scheme).

Get the poker venue to buy stamps from you. This provides a steady cash flow to you. When the players pay the table fee they get a few stamps which they paste in books. If they can fill up enough books they redeem them for items from your website. Those items sound like inventory to me (well, hmmm, tough question, it's more like the stamps are inventory, n'est pas?). However, since relatively few people redeem, your costs are low.

Buffet and Munger actually bought one of these trading stamp companies years ago, can't remember if it was S&H or not

CrowJD (talk|edits) said:

26 June 2008
Here's a link if you want to read about the Buffett Munger strategy with trading stamps http://books.google.com/books?id=LhMGSDiQghEC&pg=PA113&lpg=PA113&dq=buffett+munger+trading+stamps&source=web&ots=qMtk2SB-fF&sig=gPe3WDMNeFGJBU8r53tenZt8VPA&hl=en&sa=X&oi=book_result&resnum=1&ct=result

What you want to work out is have the float (ie. cash) to play with before possible redemtions. Very much like an insurance company which they also, as you probably know, like.

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