Did a federally funded $40 converter-box coupon reduce the amount subject to Kansas sales tax when the government reimbursed the retailer?

Plain-English summary

The federal government gave eligible households up to two $40 coupons toward converter boxes for the digital-television transition. After a consumer used a coupon, the federal National Telecommunications and Information Administration reimbursed the retailer.

The Department said the coupon did not reduce Kansas taxable gross receipts. Because a third party reimbursed the retailer, sales tax applied to the total value received:

• the amount paid by the consumer; plus
• the coupon amount reimbursed by the federal program.

K.A.R. 92-19-16a(d) distinguishes that situation from an unreimbursed retailer coupon. If no manufacturer or other party reimburses the retailer, the price reduction is a discount and only the customer's net payment is taxable. If a retailer enhances a manufacturer's coupon from its own funds, the unreimbursed enhancement is likewise a nontaxable discount.

What this means for you

Retailers accepting coupons

Determine who bears the discount. Include a coupon in the Kansas tax base when a manufacturer, government program, or other third party reimburses you.

Retailers funding their own discounts

An unreimbursed coupon or retailer-funded enhancement reduces the taxable amount under the rule quoted in the letter.

Accountants and point-of-sale teams

Configure coupon tax logic around reimbursement, not just the amount the customer pays at checkout. Preserve reimbursement records supporting the gross-receipts calculation.

Common questions

Q: Was sales tax charged only on the customer's cash payment?
A: No. The reimbursed $40 coupon amount was also included in taxable gross receipts.

Q: Why was the coupon taxable?
A: The federal government reimbursed the retailer, so the coupon was part of the total consideration received for the converter box.

Q: What if the retailer is never reimbursed?
A: The reduction is treated as a discount, and the taxable amount is the customer's net payment.

Q: What if the retailer increases a manufacturer's coupon value?
A: The retailer-funded, unreimbursed enhancement is a nontaxable discount under the quoted rule.

Citations and references

• K.A.R. 92-19-16a(d) — reimbursed coupons included in taxable sales value; unreimbursed coupons treated as discounts
• Digital Television Transition and Public Safety Act of 2005 — authority for the federal converter-box coupon program, as described in the letter

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: O-2008-006

Original ruling text

Opinion Letter

Body:

Office of Policy & Research

March 17, 2008

XXXXXXXXX
XXXXXXX
XXXXXXXXXXXXXXX

Re: Converter Box Coupon Program

The purpose of this letter is to respond to your letter dated February 8, 2008. In your letter you stated:

The Department of Commerce's National Telecommunications and Information Administration, a department of the federal government, is administering the Digital-to-Analog Converter Box Coupon Program as authorized in the Digital Television Transition and Public Safety Act of 2005. Between Jan. 1, 2008, and March 31, 2009, eligible U.S. households can request up to two coupons, worth $40 each, to be used towards the purchase of up to two coupon-eligible converter boxes.

You ask if the coupon that is issued by the federal government and presented at the time of purchase by the consumer reduces the taxable gross receipt of the transaction.

The Department has reviewed your request for guidance on this matter. The reimbursement by the Department of Commerce's National Telecommunications and Information Administration to the xxxxxx (retailer) is a part of the taxable gross receipt and is subject to Kansas retailer’s sales tax.

The Department’s rationale is as follows:

Retailers’ sales tax is collected on the gross receipt of the retailer.

In cases in which the retailer is reimbursed by a third party, the sales tax is calculated on the amount the consumer paid the retailer and the amount that retailer is reimbursed.

The following subsection (d) of K.A.R 92-19-16a explains:

(d) If a retailer accepts a coupon for a taxable product and will later be reimbursed by a manufacturer or other party for the reduction in selling price, the total sales value, including the coupon amount, shall be subject to sales tax. If a retailer accepts a coupon and will not be reimbursed for the reduction in selling price, the reduction shall be considered a discount, and the taxable amount shall be the net amount paid by the customer after deducting the value of the coupon. If a retailer enhances the value of a manufacturer’s coupon, the amount of the unreimbursed enhancement shall be treated as a discount that is not subject to sales tax.

Sincerely,

Mark D. Ciardullo
Tax Specialist

Date Composed: 10/15/2008 Date Modified: 10/15/2008

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