Is selling a discount loyalty card subject to Kansas sales tax?

Plain-English summary

A pawn shop was considering selling a one-year "loyalty card" giving buyers a package of benefits: a 10% discount on store purchases (excluding firearms and ammunition), one month of free interest after five pawn redemptions, 10% more cash on items never pawned before, and a 10% larger loan for customers bringing in a pawn ticket and item from another shop. Its representative asked whether selling that card is subject to Kansas sales tax.

The Department's answer: no. The sale of the loyalty card — which provides discounts and improved pawn terms to the purchaser — is not subject to Kansas sales tax under K.S.A. 79-3603. What the customer buys is a bundle of discount rights, not tangible personal property or an enumerated taxable service.

What this means for you

Retailers selling discount or membership cards

Charging customers up front for a card that only entitles them to future discounts or better terms is generally not a taxable retail sale in Kansas. (Tax still applies normally to the underlying taxable goods the customer later buys, net of the discount.)

Pawnbrokers and similar businesses

A loyalty program sold as a card conveying discounts and better loan/pawn terms is not itself a taxable sale under K.S.A. 79-3603.

Common questions

Q: Is selling a loyalty or discount card taxable in Kansas?
A: In this ruling, no. The Department found the sale of a loyalty card providing discounts and better pawn terms is not subject to Kansas sales tax under K.S.A. 79-3603.

Q: Why isn't it taxable?
A: The card conveys discount benefits rather than tangible personal property or a listed taxable service, so its sale falls outside K.S.A. 79-3603.

Q: Does this mean the customer's later purchases are tax-free?
A: No. This ruling is only about the sale of the card itself; the customer's later taxable purchases are still taxed as usual (on the discounted price).

Q: Does this ruling apply to me?
A: A Kansas private letter ruling addresses only the requesting taxpayer's facts and cannot be relied on as precedent by others, though it shows how the Department reasons.

Citations and references

• K.S.A. 79-3603 — imposes the Kansas retailers' sales tax on enumerated sales of tangible personal property and services. The Department concluded that the sale of a loyalty card providing discounts and better pawn terms is not subject to sales tax under this statute.

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: P-2014-005

Original ruling text

Private Letter Ruling

Body:

Office of Policy and Research

October 15, 2014

XXXXXXXXXXX
XXXXXXXXXXX
XXXXXXXXXXX
XXXXXXXXXXX

RE: Private letter ruling regarding whether loyalty cards are subject to Kansas Sales & Use tax

Dear XXXXXXXXX,

In your recent email to the Kansas Department of Revenue you explain that your client, XXXXXXXXXXX, is considering selling “loyalty cards” which will be valid for one year and will provide the following benefits and discounts to those customers that purchase the card:

· 10% discount on all store purchases (excluding firearms and ammunition)
redeem 5 pawns and receive 1 month free interest on your 6th redeem;
· 10% more cash for new pawn items. Customer who brings in an item that
has not been pawned before will receive an additional 10% on the quote; and
· a customer who brings in a pawn ticket and item from another pawn
shop will qualify for a loan of 10% more on that item.

In your email, you asked if the sale of the "loyalty card" would be subject to Kansas sales tax. No, the sale of the "loyalty card" by the pawn shop which provides the benefits and discounts to the purchaser would not be subject Kansas sales tax under K.S.A. 79-3603.

This private letter ruling is based solely on the facts provided in your request. If it is determined that undisclosed facts were material or necessary to make an accurate determination by the department, this ruling is null and void. This private letter ruling will be revoked in the future by operation of law without further department action if there is a change in the statutes, administrative regulations, or case law, or a published revenue ruling, that materially affects this private letter ruling.

Sincerely,

Robin C. Harris
Tax Specialist
Office of Policy & Research

Date Composed: 10/16/2014 Date Modified: 10/16/2014

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