Tuesday, October 13, 2009


This is one of a series on how to handle items that affect the "basis" of tax.

There are two types of coupons (in the sales and use tax world, anyway): manufacturer's coupons and store coupons.

A manufacturer's coupon is one of those things you get in the mail, typically issued by the manufacturer, giving you some discount on your purchase.

A store coupon is also a piece of paper, and you may get it in the mail. But it's fundamentally different.

The difference is that the store coupon essentially acts as a price or quantity discount. The store (the seller) is actually giving you a discount, just like a mark-down in the store. You just have to do a little coupon clipping to get the discount. But the key thing is that the store is incurring the cost of the honoring coupon.

In the case of a manufacturer's coupon, you hand them the paper, and they give you the discount. But the store (seller) will be reimbursed by the manufacturer for the discount offered by the coupon, plus a little extra for processing. The key thing here is that the store incurs no cost to honor the coupon. That cost is born by the manufacturer.

In effect, the store is receiving the full amount of the selling price! They're receiving some money from you. And they're receiving the rest of the money from the manufacturer. So they really sold you the item for the full amount, as far as they're concerned.

While there are exceptions, most states consider manufacturer's coupons to operate the same way as rebates - they do NOT reduce the basis of the tax. The tax you pay will be on the original selling price before the coupon.

But store coupons are almost universally treated just like price and quantity discounts. They reduce the selling price.

Don't believe me? Next time you're in a big store, like Target, or your local chain grocery store, see how they handle that manufacturer's coupon on the receipt. The tape will show that they gave you the discount, but they charged you tax on the original selling price.

That is, unless you're in one of the few states that treat both types of coupons the same. In those glorious places, both coupons reduce the selling price.

Sales Tax Guy

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