When a store doubles a manufacturer's coupon, what amount is subject to sales tax?

Plain-English summary

Robert J. Seid (North Patchogue, New York) asked what counts as taxable "receipts" when a merchant redeems a manufacturer's coupon at double its face value.

The answer depends on who funds each part of the discount.

• § 1105(a) taxes the "receipts" from retail sales, and § 1101(b)(3) defines a receipt as the sale price valued in money.
• Under 20 NYCRR 526.5(a):
  • A manufacturer's coupon is a reimbursed credit — the store gets paid back by the manufacturer — so its value stays in the taxable receipt (tax is due on the amount paid plus the coupon credit).
  • A store's own coupon or discount for which it gets no reimbursement reduces the receipt to the actual discounted price.
• So on a "doubled" manufacturer's coupon, sales tax is due on the sum of (a) the discounted price the consumer actually pays and (b) the value of the manufacturer's coupon. The store's extra "doubling" amount is its own unreimbursed discount, which is not taxed.

Worked example (from the opinion): a $2.00 item with a 50-cent manufacturer coupon that the store doubles:

Tax (11 cents) is figured on $1.50 — the price the shopper effectively pays for the goods ($1.00) plus the reimbursed manufacturer's coupon ($0.50).

What this means for you

Who reimburses the coupon decides whether it's taxed. A manufacturer-funded coupon is treated as part of the price (the manufacturer is paying it for the shopper), so it stays in the tax base. A store-funded discount with no reimbursement lowers the taxable price. When a store doubles a manufacturer's coupon, you're mixing the two — tax the manufacturer's portion, not the store's add-on.

Charge tax on the manufacturer's coupon value. Even though the shopper doesn't hand over cash for the manufacturer's-coupon portion, you must collect tax on it, because you'll be reimbursed for it. Failing to include it undercollects the tax you owe.

Don't tax your own giveaway. The store's doubling (or any store discount you aren't reimbursed for) comes out of the tax base, so you don't charge tax on that part.

Common questions

Q: A shopper uses a 50-cent manufacturer coupon and we double it — what do we tax?
A: Tax the price the shopper effectively pays for the goods plus the 50-cent manufacturer coupon value. Your extra 50-cent doubling is an unreimbursed store discount and isn't taxed. On a $2.00 item at 7%, tax is 11 cents (on $1.50).

Q: Why is the manufacturer's coupon taxed but the store's doubling isn't?
A: The manufacturer reimburses its coupon, so that value is part of the receipt. The store's doubling isn't reimbursed, so it reduces the receipt — 20 NYCRR 526.5(a) treats reimbursed and unreimbursed credits differently.

Q: What if we don't disclose that a coupon is manufacturer-reimbursed?
A: Under 20 NYCRR 526.5(a), a store that issues a coupon involving manufacturer reimbursement but doesn't disclose it collects tax from the customer only on the reduced price, yet still owes tax on the full receipt (price plus reimbursement).

Citations and references

Statutes, regulations and authority:

• Tax Law § 1105(a) — imposes sales tax on receipts from every retail sale of tangible personal property
• Tax Law § 1101(b)(3) — defines "receipt" as the amount of the sale price valued in money
• 20 NYCRR 526.5(a) — treats coupons by reimbursement: manufacturer coupons (and reimbursed store coupons) keep their value in the taxable receipt; unreimbursed store discounts reduce the receipt to the discounted price

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1980.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/h80_265s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-H-80(265)S
Sales Tax
December 28, 1980

STATE OF NEW YORK
STATE TAX COMMISSION
ADVISORY OPINION

PETITION NO. S800822A

On August 22, 1980, a Petition for Advisory Opinion was received from
Robert J. Seid, 54 Sterling Avenue, N. Patchogue, N.Y. 11772.
The issue raised is what constitutes "receipts" subject to the sales tax
imposed under Article 28 of the Tax Law where manufacturer's coupons are redeemed
by a merchant at double their face value.
Section ll05(a) of the Tax Law imposes a tax on the receipts from retail
sales of tangible personal property. Section 1101(b)(3) of the Tax Law defines
the term receipt, in relevant part, as "The amount of the sale price of any
property...valued in money...."
Section 526.5(a) of the Sales and Use Tax Regulations deals with the
question of coupons as follows: (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...(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...(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...(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."
Accordingly, where a merchant "doubles" the value of a manufacturer's
coupon sales tax is due on an amount equal to the sum of the discounted price
(the amount actually paid by the consumer) and the value of the manufacturer's
coupon.

JAMES H. TULLY, JR., COMMISSIONER
LOUIS M. JACOBSON, DEPUTY COMMISSIONER
FRANK J. PUCCIA, DIRECTOR
TP-8 (4/80)

2
TSB-H-80(265)S
Sales Tax
December 28, 1980

Thus, if an item is priced at $2.00 and a merchant doubles the value of a fifty
cent coupon for such item the purchase is subject to tax as follows:
Regular price
Value of merchant's doubling
of manufacturer's coupon

$2.00
-.50

Tax (e.g.,7%)

$ 1.50

• .11

Value of manufacturer's coupon

$ 1.61
-.50

Amount due from purchaser

$ 1.11

DATED: November 6,1980

s/LOUIS ETLINGER
Deputy Director
Technical Services Bureau