TR 15: Coupons & Discounts

Coupons

There are two kinds of coupons, manufacturer's coupons and store coupons. A manufacturer's coupon is issued by the manufacturer for presentation to a retailer for a reduction in the sales price of the manufacturer's product. The retailer receives reimbursement from the manufacturer for the amount of the reduction. A store coupon is issued by a retailer for a reduction in the price of an item sold by the retailer and for use only in the retailer's business. There is no reimbursement to the retailer for the reduction in price.

The sales tax basis is the total value of money, credits and property received, and this includes any reimbursement from the manufacturer. Therefore, when a manufacturer's coupon is used, the full sales price before subtracting the coupon is subject to sales/use tax. There is no reimbursement to the retailer when using a store coupon. Therefore, only the reduced price, the sales price less the coupon amount, is subject to sales/use tax.

The sale of coupon books to the general public is not a taxable transaction. The publisher of the book must pay sales/use tax to the printer based on the cost of the book.

Discounts

To determine the tax basis of a sale subject to a discount you must first determine if the discount stands without a future event or if the discount is determined by a future event. Discounts that are determined by future events are taxable at the full price, not the discounted price; and discounts not determined by future events are taxable at the discounted amount.

A trade or quantity discount is a reduction of the selling price, usually expressed as a percentage of a list price. The reduction in the selling price is not contingent upon any other event. Therefore, the discounted price is the taxable basis. A cash discount usually appears on an invoice as discounted terms (e.g. 2% 10, Net 30). A cash discount is contingent upon a future event (when payment is made). Therefore, the sale is taxable at the full price, not the discounted price.

Examples:

1. A grocery store chain publishes coupons weekly in the area newspapers. When a coupon is redeemed at the time of purchase the amount subject to sales tax is the reduced amount, the sales price less the coupon amount.
   
   
2. A shampoo manufacturer mails $1.00 off coupons for the purchase of a new shampoo. When a coupon is redeemed at the time of purchase, the retailer must collect tax on the full price of the shampoo, the price before the deduction for the coupon, because the retailer will be reimbursed for the amount of the coupon.
   
   
3. An industrial supply house sells light bulbs for $2.50 each and gives a quantity discount of 5% for the purchase of 25 or more. If a customer purchases 2 light bulbs the taxable amount would be $5.00; but, if the customer purchased 25 bulbs the taxable amount would be $59.38, the discounted amount. The discount is not contingent on a future event. Therefore, the amount subject to sales tax is the discounted price.
   
   
4. The above supply house offers discounted terms on its invoices of 2% 10, Net 30. This means that if invoices are paid within 10 days, 2% can be discounted from the invoice. If a customer's invoice is $200.00 and the payment is made within 10 days, the customer can take the 2% discount from the $200.00, but the amount subject to sales tax is $200.00, not the discounted amount. The full price is subject to tax because the discount is contingent on a future event, the payment of the invoice.

Last Updated on Wednesday, 11 July 2012 12:07