Does a grocery's larger 'Advantage Shelf Tag' adequately disclose a manufacturer's coupon reimbursement in an electronic (paperless) coupon system?

Plain-English summary

This is a Modified Advisory Opinion issued to Price Chopper on reconsideration of an opinion the Department had issued on August 24, 1992 (TSB-A-92(64)S). Price Chopper runs an electronic coupon system called "Advantage" that automatically deducts a manufacturer's coupon at the register without any paper coupon being presented. The tax question is about disclosure: New York's coupon rules (Reg. § 526.5(c)) say that when a store's coupon involves a manufacturer's reimbursement, sales tax is due on the full receipt (the price paid plus the reimbursement), and the store must disclose the manufacturer reimbursement to the customer. If the reimbursement is not disclosed (§ 526.5(c)(4)), the store collects tax from the customer on only the reduced price but must pay tax out of its own pocket on the full receipt including the reimbursement.

Because Price Chopper's system has no paper coupon, the disclosure has to appear in its advertising. The August opinion held that:

• Indicating "MFG" or "M" on manufacturer's coupons printed in in-store circulars and newspaper inserts is adequate disclosure; but
• An "MFG"/"M" code on the standard shelf label alone does not meet the § 526.5(c)(4) disclosure requirement.

On reconsideration, the Department agreed that the "Advantage Shelf Tag" — a larger (about 4¼" × 4"), differently-colored tag carrying phrases like "Retail Price $__ with Membership Card" and an "MFG"/"M" marking — substantially as described, does meet the disclosure requirements of § 526.5(c)(4). So a properly designed shelf tag can satisfy disclosure in a paperless coupon system.

What this means for you

Grocers and retailers using electronic/paperless coupons

If you run a scan-down or card-based coupon program with no paper coupon, you still have to disclose the manufacturer's reimbursement to the customer to get the normal tax treatment; otherwise you'll owe sales tax on the reimbursed portion yourself. Disclosure can live in your advertising — in-store circulars, newspaper inserts, or a sufficiently distinct shelf tag. A plain, standard shelf label with only a small "MFG"/"M" code is not enough; a larger, visually distinct tag that clearly flags the manufacturer coupon (as Price Chopper's "Advantage Shelf Tag" did) can be.

Why the tax turns on disclosure

The tax base doesn't change — tax is due on the full receipt including the manufacturer's reimbursement. Disclosure decides who bears the tax on the reimbursed amount: with proper disclosure, the customer pays it; without disclosure, the store must absorb it.

Accountants and tax professionals

The holding is a fact-specific disclosure ruling under Reg. § 526.5(c)(4). It confirms adequate disclosure can be achieved through advertising media (circulars/inserts) or a distinctive shelf tag, but not through a routine shelf label bearing only a coupon code. This opinion modifies the Department's August 24, 1992 opinion to Price Chopper (TSB-A-92(64)S).

Common questions

Q: In a paperless coupon system, how does a store disclose a manufacturer's reimbursement?
A: Through its advertising — in-store circulars, newspaper inserts, or a sufficiently distinctive shelf tag. Here the larger "Advantage Shelf Tag" qualified.

Q: Is a small "MFG" or "M" code on the ordinary shelf label enough?
A: No. The Department held an "MFG"/"M" code on the standard shelf label alone does not meet the § 526.5(c)(4) disclosure requirement.

Q: What happens if the manufacturer reimbursement isn't disclosed?
A: The store collects tax from the customer only on the reduced price but must pay tax on the entire receipt — the price plus the reimbursement — out of its own funds.

Q: Can another taxpayer rely on this opinion?
A: No. An advisory opinion binds the Department only as to the petitioner and the facts described; another taxpayer with different facts cannot rely on it.

Citations and references

Statutes and authorities:

• Sales and Use Tax Regulations § 526.5(c) (coupons)
• Sales and Use Tax Regulations § 526.5(c)(1) (manufacturer coupon; tax due on the full receipt)
• Sales and Use Tax Regulations § 526.5(c)(4) (undisclosed manufacturer reimbursement; vendor must pay tax on the full receipt)
• Prior opinion modified: TSB-A-92(64)S (issued August 24, 1992, to the same petitioner)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1992.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a92_64_1s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-92 (64.1) S
Sales Tax
November 13, 1992

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
MODIFIED ADVISORY OPINION

PETITION NO. S920520A

On August 24, 1992 an Advisory Opinion was issued to Price Chopper Operating Co., Inc.,
P.O. Box 1074, Schenectady, New York 12301. On September 24, 1992 Petitioner, Price Chopper
Operating Co., Inc. requested reconsideration of the Advisory Opinion issued on August 24, 1992.
Petitioner's basis for reconsideration is that the "Advantage Shelf Tag" is substantially
different from the standard shelf label, which was held in the August 24, 1992 Advisory Opinion not
to meet the disclosure requirements of Section 526.5(c)(4) of the Sales and Use Tax Regulations,
so as to comply with the disclosure requirements of said regulation.
Petitioner has instituted an electronic coupon system called "Advantage" which allows for
the automatic deduction at the point of sale of manufacturer's coupons which reduce the amount of
the purchase price of the product without the physical presentation of a paper coupon. The coupon
item is rung up on the register at full retail and at the bottom of its tape Petitioner's scanning
system automatically deducts the amount of the coupon. Petitioner's register tape provides sufficient
detail to identify the product to which the coupon applies.
Where there is no paper coupon available, Petitioner proposes to indicate that the product is
a manufacturer's coupon item by replacing the standard shelf label with an "Advantage Shelf Tag".
The "Advantage Shelf Tag" differs from the standard shelf label in that:
1.

It measures approximately 4 1/4" x 4" in size as opposed to the standard shelf label
which measures approximately 3 7/8" x 1 1/8".

2.

It is a different color from the standard shelf label.

3.

It contains the phrases "Every Day We Save You More", "Advantage $", "Take
Advantage of Us!", "Retail Price $
with Membership Card", "Save
¢ with
Membership Card Until"
and "Retail Price $
without Card", which phrases
do not appear on the standard shelf label.

4.

It has the letters "MFG" or "M" printed on it to indicate that the item was the subject
of a manufacturer's coupon which letters do not appear on the standard shelf label.
Petitioner presently prints "MFG" or "M" on manufacturer coupons printed in its in­
store circulars and newspaper inserts even though these letters are printed only to
inform the customer of the available "Advantage" products for the week.

TP-9 (9/88)

-2­
TSB-A-92 (64.1) S
Sales Tax
November 13, 1992
Section 526.5(c) of the sales and use tax regulations provides as follows:
(c) Coupons. (1) Where a manufacturer issues a coupon entitling a purchaser to a
credit on the item purchased, the tax is due on the full amount of the receipt. The
receipt is composed of the amount paid and the amount of the coupon credit. The
coupon credit reflects a payment or reimbursement by another party to the vendor.
Example 1:

A manufacturer issues coupons entitling the holder to
credit allowances of 12¢ on the purchase of its
products from a retailer. The tax is computed as
follows by the retailer:
Regular price
Tax at 7% rate
Credit for mfr. coupon
Amount due from purchaser

63¢
5¢
68¢
12¢
56¢

(2) Where a store issues a coupon, entitling a purchaser to a credit on the item
purchased, for which it is reimbursed by a manufacturer or distributor, the tax is due
on the full amount of the receipt. The receipt is composed of the amount paid and the
amount of the coupon credit. The coupon must indicate, by "mfr" or some other code,
that reimbursement is made. The reimbursement from the manufacturer or distributor
to the store may be made in any form, such as cash or a credit against purchases or
in additional merchandise.
Example 2:

A store issues a coupon, labeled "mfr" entitling the
holder to a credit allowance of 12 cents on the
purchase of its products from a retailer. The purchaser
is billed as follows by the retailer:
Regular price
Tax at 7% rate
Credit for mfr. coupon
Amount due from purchaser

63¢
5¢
68¢
12¢
56¢

(3) Where a store issues a coupon entitling a purchaser to a discounted price
on the item purchased, and receives no reimbursement, the tax is due from the
purchaser on only the discounted price, which is the actual receipt.
Example 3:

A store issues coupons entitling the holder to
credit allowance of 12 cents on the purchase
of its products from a retailer. The purchaser
is billed as follows by the retailer:

-3­
TSB-A-92 (64.1) S
Sales Tax
November 13, 1992
Regular price
Store coupon

63¢
12¢

Tax at 7 percent rate
Amount due from purchaser

4¢
55¢

(4) Where a store issues a coupon involving manufacturer's reimbursement,
but does not disclose that fact to the purchaser on the coupon or in the advertisement,
the vendor will collect from the purchaser only the tax due on the reduced price, but
will be required to pay the tax on the entire receipt--the amount of the price and the
reimbursement received from the manufacturer or distributor.
Under Section 526.5(c)(4) of the Sales and Use Tax Regulations in order for the use of the
manufacturer's coupon to be entitled to the method of tax computation set forth in Section
526.5(c)(1) of the Regulations, the manufacturer's reimbursement must be disclosed to the purchaser
on the coupon or in the advertisement for the product. In the instant case, since there are no physical
coupons, this information must be contained in Petitioner's advertisements. Petitioner may show that
the item was the subject of a manufacturer's coupon by indicating "MFG" or "M" on manufacturer's
coupons printed in-store circulars and newspaper inserts. The indication by a code such as "MFG"
or "M" on the standard shelf label alone would not meet the disclosure requirements of Section
526.5(c)(4) of the Regulations. However the "Advantage Shelf Tag" substantially as described above
would meet the disclosure requirements of said section of the Regulations.

DATED: November 13, 1992

s/PAUL B. COBURN
Deputy Director
Taxpayer Services Division

NOTE: The opinions expressed in Advisory Opinions
are limited to the facts set forth therein.