Did an Illinois restaurant charge tax on the menu price before an unreimbursed discount or voucher?

Plain-English summary

An unreimbursed restaurant discount reduced the taxable amount to what the seller actually received. The restaurant asked about a 20% menu discount and a $20 voucher offered after a customer spent $100.

The GIL defines taxable gross receipts as the consideration actually received by the seller, apart from traded-in tangible personal property. If no supplier, manufacturer, dealer, or other party reimbursed the seller, only the discounted amount was taxable. If the seller received a rebate or reimbursement for the discount, that payment was part of gross receipts and was fully taxable.

What this means for you

Record who funded every coupon, voucher, promotion, or loyalty benefit. A discount funded solely by the seller and a discount reimbursed by a third party do not produce the same Illinois tax base under this GIL.

Common questions

Q: On a $10 sale reduced by an unreimbursed $2 discount, what amount was taxable?
A: The $8 actually received by the seller.

Q: What if a manufacturer reimbursed the $2?
A: The reimbursement remained part of taxable gross receipts.

Q: Does calling a benefit a voucher decide the result?
A: No. The controlling point in this GIL was whether the seller received reimbursement for the reduction.

Subject

Gross Receipts

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/sales-tax/2011.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/sales-tax/2011/st-11-0003.pdf

Original ruling text

ST 11-0003-GIL 01/10/2011 GROSS RECEIPTS
If a seller receives a reimbursement or rebate for a discount, the amount of that reimbursement
or rebate is considered part of the gross receipts received by the seller and is subject to
Retailers' Occupation Tax. If a seller provides a discount to a purchaser and does not receive
a reimbursement or rebate for that discount, only the (discounted) amount received by the
seller is taxable. See 86 Ill. Adm. Code 130.2125. (This is a GIL.)

January 10, 2011

Dear Xxxxx:
This letter is in response to your letter dated December 18, 2010, in which you request
information. The Department issues two types of letter rulings. Private Letter Rulings (“PLRs”) are
issued by the Department in response to specific taxpayer inquiries concerning the application of a
tax statute or rule to a particular fact situation. A PLR is binding on the Department, but only as to the
taxpayer who is the subject of the request for ruling and only to the extent the facts recited in the PLR
are correct and complete. Persons seeking PLRs must comply with the procedures for PLRs found in
the Department’s regulations at 2 Ill. Adm. Code 1200.110. The purpose of a General Information
Letter (“GIL”) is to direct taxpayers to Department regulations or other sources of information
regarding the topic about which they have inquired. A GIL is not a statement of Department policy
and is not binding on the Department. See 2 Ill. Adm. Code 1200.120. You may access our website
at www.tax.illinois.gov to review regulations, letter rulings and other types of information relevant to
your inquiry.
The nature of your inquiry and the information you have provided require that we respond with
a GIL. In your letter you have stated and made inquiry as follows:
We have two questions regarding the proper sales tax treatment for some of our
restaurant sales. First, if we give customers a 20% discount on certain menu items (no
supplier or anyone else is reimbursing us for the discount). Does the customer pay
sales tax on the discount amount?
For example, for an order of $10 sales, a $2 discount is applied. Should the customer
pay sales tax on the $10 amount or on the $8 amount?
Secondly, if we give customers $20 discount voucher if they spend $100 at the
restaurant, do they pay sales tax on $100 or $80?
According to the information bulletin FY91-44, if we are not reimbursed for a discount by
a manufacturer or dealer, then we may subtract the discount from the selling price in
figuring sales tax.
It is my understanding that if I do not receive reimbursement for the discount that I give
to my customers, we will not calculate the sales tax on the discount amount. Please
mail or email me a letter in response.

DEPARTMENT’S RESPONSE:
Gross receipts subject to Retailers' Occupation Tax are defined as all the consideration
actually received by the seller, except traded-in tangible personal property. See 86 Ill. Adm. Code
130.401. If a seller receives a reimbursement or rebate for a discount, the amount of that
reimbursement or rebate is considered part of the gross receipts received by the seller. This amount
is fully taxable. If a seller provides a discount to a purchaser and does not receive a reimbursement
or rebate for that discount, only the (discounted) amount received by the seller is taxable. See, for
example, 86 Ill. Adm. Code 130.2125.
I hope this information is helpful. If you require additional information, please visit our website
at www.tax.illinois.gov or contact the Department’s Taxpayer Information Division at (217) 782-3336.
Very truly yours,

Richard S. Wolters
Associate Counsel
RSW:msk