Great Articles: Two on Groupon and Living Social, etc.

For whatever reason, I've had two good (and technical) articles circling for too long in my bookmarks.  They're both on Groupon, Living Social and other similar services.

Yes, there are rather interesting sales and use tax issues associated with these type of offers. And I don't want to write about these topics.  I mean I REALLY don't want to write about them.  So I'll refer you to two excellent treatments.  I have written a couple of articles on generic coupons, which were hard enough.

The first is from Sylvia Dion on allbusiness.com

And the other is from Rusty Little on http://dowlohnesprice

Personally, I don't use these offers. My life is complicated enough as it is.

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This link is part of a series called "Excellent articles that I wish I had written."  The short name is "Great Articles."

The Sales Tax Guy
http://salestaxguy.blogspot.com

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Coupons

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

See disclaimer and research the issues thoroughly before making decisions

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Digital Converter Boxes*

We here at SalesTaxGuy are always looking out for you folks. We just wanted you to know that. So when these stories started popping up, we knew you’d be concerned.

Y’know all of those announcements on TV about the upcoming shift to digital, and how you can get a coupon for the converter box? And you’ve all been worrying about the sales tax impact of that coupon, haven’t you? Yep, I knew it. So, here’s the information you’ve been desperately seeking.

So far, of the states that have made an announcement about this, they seem to be roughly split in half.

The good guys are considering the coupon to be a reduction in the basis of the tax calculation. Therefore, if you paid $50 for a box, and the coupon reduces the price to $10, the sales tax will be calculated on the $10 - NOT the $50. In some cases, the state law already supports this method, in other cases they consider the coupon to be a sale to the US government. Either way, these states are the good guys, as of this writing: WI, PA, FL, CT, KY, CA, IL, TX

Then there are the states wearing the black hats (the bad guys)…you’ll have to pay sales tax on the full amount of the sale with no deduction for the coupon in: NY, TN, UT, OH, NE, SC, NM

If you’re saying, “Huh?” then you probably don’t know about this little coupon situation:

When it comes to coupons, most of the states say that a coupon, issued by someone other than the retailer, will NOT reduce the basis of the tax calculation. If you buy some soap and use the dollar off coupon on the $3 bottle, then the tax is still calculated based on $3. The assumption is that the selling price hasn’t really changed. It was just paid for with $2 of your money and $1 of the manufacturer’s money.

But in the case of the converter box coupon, the theory, in some states, is that, since the US government is providing the coupon, $40 of the sale is actually to the US government and that sale can’t be taxed. And some of the states rightly think that making people pay the sales tax on that full $50 is not the politically wise thing to do.

So, I hope that’s a load off all of your minds.

By the way, in my research, I came across the link to get the aforementioned coupon…https://www.dtv2009.gov/

Happy viewing.

Sales Tax Guy

*The picture is not mine. Thanks to DixiePistols. Here is a link to the picture