Under the now-superseded RR 98-15, how did coupons and discount cards change South Carolina's taxable sales price?

Plain-English summary

South Carolina Revenue Ruling 98-15 divided coupons and discount-card arrangements according to what the retailer received and whether a third-party payment was tied to the retail sale.

For a manufacturer coupon, the ruling included the customer's payment and the manufacturer's reimbursement in taxable gross proceeds. In its example, a $5 item remained taxable on $5 when the customer paid $4 and the manufacturer reimbursed $1. RR 98-15 also included a manufacturer-paid coupon-processing allowance, so an additional eight-cent allowance made the taxable amount $5.08. The later RR 99-9 expressly superseded RR 98-15 and changed that processing-allowance treatment.

For the retailer's own self-redeeming coupon, tax applied only to the reduced amount paid by the customer because the retailer received no reimbursement. A $5 item sold for $4 with the store's own $1 coupon was taxable on $4.

Discount-card programs followed a similar connection-to-the-sale test. A supplier allowance based on the retailer's earlier wholesale purchases or negotiations was not included in gross proceeds, so tax applied to the discounted customer price. A supplier reimbursement triggered by the retailer's sale of the discounted item was included, so tax applied to the customer payment plus the supplier payment.

Historical treatment by arrangement

• Manufacturer coupon: customer payment plus manufacturer reimbursement was taxable.
• Coupon-processing allowance: RR 98-15 treated it as taxable, but successor RR 99-9 changed that conclusion.
• Retailer's own coupon: only the reduced customer payment was taxable.
• Purchase-based supplier allowance: the allowance was not part of gross proceeds from the retail sale.
• Sale-based supplier reimbursement: customer payment plus supplier reimbursement was taxable.

Common questions

Q: Did the label "coupon" decide the tax result? No. The ruling focused on who funded the reduction and whether the retailer received money because of the particular retail sale.

Q: Why did a manufacturer coupon generally leave the full price taxable? The retailer received part of the price from the customer and the rest from the manufacturer.

Q: Why did a store's own coupon reduce the taxable amount? The retailer received only the reduced customer payment and no third-party reimbursement.

Q: Is RR 98-15 still the Department's controlling coupon ruling? No. RR 99-9 expressly superseded it. This page preserves the earlier ruling's historical analysis and should not be used as current authority.

Citations and references

• S.C. Code Ann. § 12-36-910 (sales tax imposed on gross proceeds of retail sales)
• S.C. Code Ann. § 12-36-90 (gross proceeds of sales, including the cash-discount exclusion discussed)
• Meyers Arnold v. South Carolina Tax Commission, 285 S.C. 303, 328 S.E.2d 920 (1985) (sale-related layaway fees discussed)
• SC Revenue Ruling #99-9 (expressly superseded RR 98-15 and revised the coupon guidance)

Subject

Coupons and Discount Cards

Source

• Landing page: https://dor.sc.gov/advisory-opinion-search
• Original PDF: https://dor.sc.gov/sites/dor/files/policies/RR98-15.pdf

Original ruling text

State of South Carolina

Department of Revenue
301 Gervais Street, P.O. Box 125, Columbia, South Carolina 29214

SC REVENUE RULING #98-15

SUBJECT:

Coupons and Discount Cards
(Sales Tax)

EFFECTIVE DATE:

Applies to all periods open under the statute.

SUPERSEDES:

All previous documents and any oral directives in conflict herewith.

REFERENCE:

S.C. Code Ann. Section 12-36-910 (Supp. 1997)
S.C. Code Ann. Section 12-36-90 (Supp. 1997)

AUTHORITY:

S.C. Code Ann. Section 12-4-320 (Supp. 1997)
SC Revenue Procedure #97-8

SCOPE:

A Revenue Ruling is the Department of Revenue’s official advisory
opinion of how laws administered by the Department are to be applied to
a specific issue or a specific set of facts, and is provided as guidance for
all persons or a particular group. It is valid and remains in effect until
superseded or modified by a change in the statute or regulations or a
subsequent court decision, Revenue Ruling or Revenue Procedure.

Question:
How does the use of a coupon or a discount card in purchasing tangible personal property, as
described in the facts, affect the measure of the sales tax - "gross proceeds of sales"?
Conclusion:
COUPONS:

1. Manufacturer’s Coupon: If a consumer purchases a product from a local retailer using a
   manufacturer's coupon as described in the facts, and the price charged the consumer by the
   retailer is reduced by the value assigned the coupon by the manufacturer, then the total amount
   received by the retailer from the consumer and the manufacturer is includable in "gross proceeds
   of sales", and therefore, subject to the sales tax. For example, if an item normally sells for $5.00
   and the customer pays $4.00 and presents a manufacturer’s coupon valued at $1.00, then the
   sales tax is based on $5.00 (“gross proceeds of sale”) since the retailer receives $4.00 from the
   customer and $1.00 from the manufacturer. If the retailer receives any additional money from
   the manufacturer as a result of accepting and processing the manufacturer’s coupon (i.e.
   processing allowance), the additional money is also a part of “gross proceeds of sale” and subject
   to the sales
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tax. For example, if the retailer in the above example receives an 8 cent processing allowance
from the manufacturer as well as $4.00 from the customer and $1.00 from the manufacturer for
the coupon, then the sales tax is based on $5.08, the total amount received by the retailer as a
result of the sale.

2. Self-Redeeming Coupon: If a consumer purchases a product from a local retailer using a
   retailer's self-redeeming coupon as described in the facts, and the price charged the consumer by
   the retailer is reduced by the value assigned the coupon by the retailer, then the amount received
   by the retailer from the consumer is includable in "gross proceeds of sales," and therefore,
   subject to the sales tax. The value of the retailer's self-redeeming coupon is not includable in
   "gross proceeds of sales," and therefore, not subject to the sales tax. For example, if an item
   normally sells for $5.00 and the customer pays $4.00 and presents the store’s self-redeeming’s
   coupon valued at $1.00, then the sales tax is based on $4.00 (“gross proceeds of sale”) since the
   retailer only receives the $4.00 from the customer.
   DISCOUNT CARD PROGRAMS:
3. Discounts Based on Purchases by the Retailer: Since the allowances described in the facts are
   based on purchases by the retailer, and not sales, these allowances are not includible in the
   retailer’s gross proceeds of sales. As such, when a store discounts an item under its discount
   card program due to the allowance it received from the supplier based on its purchases, the
   discounted price paid by the customer is the basis for the sales tax (“gross proceeds of sale”).
   For example, if an item normally sells for $5.00 and the customer pays only $4.00 since he used
   his discount card, then the sales tax is based on $4.00 (“gross proceeds of sale”) since the
   allowance received by the retailer was based on purchases by the retailer, and not sales by the
   retailer.
4. Discounts Based on Sales by the Retailer: Since the allowances described in the facts are
   based on sales by the retailer, these allowances are includible in the retailer’s gross proceeds of
   sales. As such, when a store discounts an item under its discount card program due to the
   allowance it will receive from the supplier based on the sale of the particular item, the
   discounted price paid by the customer plus the amount received by the retailer from the supplier
   is the basis for the sales tax (“gross proceeds of sale”). For example, if an item normally sells
   for $5.00 and the customer pays only $4.00 since he used his discount card, then the sales tax is
   based on $5.00 (“gross proceeds of sale”) since the retailer receives $4.00 from the customer and
   $1.00 from the supplier.
   Facts:
   COUPONS:
   In order to entice consumers to purchase their products, manufacturers and retailers issue
   coupons that can be used by the consumer to reduce the price he or she pays for the products.
   While there may be other types of coupons, this ruling will only consider two types.
5. Manufacturer’s Coupons: The first is a manufacturer's coupon. This type of coupon is issued
   by the manufacturer of a product, and is usually mailed to consumers or placed in newspapers
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and other publications to be cut out by consumers. If a consumer purchases the manufacturer's
product from a local retailer using the coupon, the price charged the consumer by the retailer is
reduced by the value assigned the coupon by the manufacturer. For example, if a retailer sells a
package of disposable diapers for $9.75, the customer will only pay $8.75 if he or she presents
the retailer with a $1.00 manufacturer's coupon. The retailer can then forward the coupon to the
manufacturer, who will reimburse the retailer a portion or all of the money the retailer "lost" in
accepting the coupon from the customer. In the above example, if the retailer is reimbursed the
full $1.00 by the manufacturer, then the retailer has received $9.75 from the sale of the
disposable diapers - $8.75 from the consumer and $1.00 from the manufacturer. In addition, the
retailer may also receive additional money from the manufacturer as a result of accepting and
processing the manufacturer’s coupon (i.e. processing allowance). For example, the retailer in
the above example may receive an 8 cent processing allowance from the manufacturer as well as
$8.75 from the customer and $1.00 from the manufacturer for the coupon.

2. Self-Redeeming Coupons: The second type of coupon is one that is issued by the retailer and
   not the manufacturer of the product. Therefore, if the consumer uses the coupon to reduce the
   price charged for the product by the retailer, the retailer will only receive the price paid by the
   consumer from the sale of the product. In the above example, if the $1.00 coupon was one
   issued by the retailer, then the retailer will receive only $8.75 from the sale of the disposable
   diapers.
   DISCOUNT CARD PROGRAMS:
   Another method used by retailers to entice consumers to purchase certain items or to shop at
   their store is the discount card program. This ruling will consider two types of discount card
   programs - one based on purchases by the retailer and one based on sales by the retailer.
3. Discounts Based on Purchases by the Retailer: By way of example, a retailer owns and
   operates numerous stores in South Carolina and surrounding states. Through its stores, the
   retailer sells at retail a wide variety of products.
   The retailer negotiates with and receives promotional and purchase allowances from its
   suppliers. Some suppliers award allowances based on past purchases and others award
   allowances based on negotiated amounts.
   The retailer can use these allowances to reduce the selling prices of a supplier’s products and/or
   to advertise or otherwise promote the supplier’s products. The taxpayer may retain the
   allowance and not reduce the retail price. All allowances are paid directly to the retailer by the
   suppliers.
   One method used by the retailer to promote certain products is a discount card program. This
   program was developed by the retailer to direct discounts to a select group of customers and to
   promote customer loyalty. Under this program, the retailer issues an encoded electronicallyreadable card to its customers. The card is similar in appearance to and functions like a bank
   automatic teller card. Each card carries unique information about each customer and enables the
   retailer to collect data related to the customer’s buying habits.

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When a customer makes a purchase, he or she presents the card to the cashier. The retailer then
discounts the price of selected products purchased by the cardholder.
While the supplier allowances provide funds for the retailer to pass additional discounts to its
cardholders, the use of the card does not affect the amount of allowances the suppliers pay to the
retailer. The allowances received are based on past purchases from, or previous negotiations
with, a supplier. There is no direct connection between a customer using his or her card to buy a
particular product and the amount the retailer receives from the product’s supplier.

2. Discounts Based on Sales by the Retailer: A second type of discount card program is very
   similar to the one discussed above; however, it differs in one important aspect. Under this
   alternative program, the retailer does not negotiate a discount on the items it purchases at
   wholesale. The retailer agrees to sell the supplier’s product at a discounted price and the
   supplier agrees to reimburse the retailer the amount of the discount for each sale of the product.
   Essentially, this discount card program is operated in the same as manufacturer’s coupons, only
   without the coupon.
   Discussion:
   COUPONS: Code Section 12-36-910 imposes "a sales tax, equal to five percent of gross
   proceeds of sales, upon every person engaged ... within this State in the business of selling
   tangible personal property at retail." (Emphasis added.)
   Code Section 12-36-90 reads, in part:
   Gross proceeds of sales, or any similar term, means the value proceeding or
   accruing from the sale, lease, or rental of tangible personal property.
   (1) The term includes:

(b) the proceeds from the sale of tangible personal property without any
deduction for:
(i) the cost of goods sold;
(ii) the cost of materials, labor, or service;
(iii) interest paid;
(iv) losses;
(v) transportation costs;
(vi) manufacturers or importers excise taxes imposed by the United
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States; or
(vii) any other expenses.
(2) The term does not include:
(a) a cash discount allowed and taken on sales;

In summary, with respect to the retailer's self redeeming coupon, as described in the facts, gross
proceeds of sales is the amount paid by the consumer. With respect to the manufacturer's
coupon, as described in the facts, the following should provide guidance.
Opinion of the Attorney General S-OAG-45 (SC Department of Revenue Manual of Regulations
and Opinions of the Attorney General) concerns a manufacturer's rebate paid to the purchaser,
and reads in part:
There is nothing in the sales tax statutes or regulations permitting a seller to
deduct from his gross proceeds an amount paid by a third party to or for the
benefit of a purchaser, even though the purpose of the payment is to reimburse the
purchaser for a part of the purchase price.
While the rebate in question was paid to the purchaser, there is still nothing in the sales tax
statute permitting the retailer to deduct from gross proceeds an amount that is paid to the retailer
by a third party.
Also, in Meyers Arnold v. South Carolina Tax Commission, 285 S.C. 303, 328 S.E. 2d. 920
(1985), the Court of Appeals, in interpreting the definition of "gross proceeds of sales" with
respect to lay away fees paid in conjunction with lay away sales, held:
Section 12-35-30 [now Section 12-36-90] defines gross proceeds of sales as "the
value proceeding or accruing from the sale of tangible personal property ...
without any deduction for service costs." But for the lay away sales, Meyers
Arnold would not receive the lay away fees. The fees are obviously rendered in
making lay away sales. For these reasons, this court holds the lay away fees are
part of the gross proceeds of sales and subject to the sales tax.
Therefore, but for the sales, the retailer would not receive the reimbursement and processing fee
from the manufacturer's coupon.
DISCOUNT CARD PROGRAMS: As stated above, Code Section 12-36-910(A) imposes the
South Carolina sales tax on a retailer’s “gross proceeds of sales.” The term “gross proceeds of
sales” is defined in Section 12-36-90, in part, as “the value proceeding or accruing from the
sale...of tangible personal property.”

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In other words, “gross proceeds of sales” is the total amount received or earned by a retailer as a
result of selling his products. The source of the amount received or earned is irrelevant. What
matters is whether the amount is received or earned as the result of a retail sale. For example, if
a manufacturer were to pay (“manufacturer’s rebate”) a retailer 15 cents for each sale by the
retailer of the manufacturer’s product and the retailer received 85 cents from the customer, the
amount subject to the sales tax would be $1.00, the 15 cents received from the manufacturer and
the 85 cents received from the customer.
As stated in the facts, some allowances, unlike manufacturer’s rebates which are paid to the
retailer as the result of a customer buying a particular product, are paid based on purchases made
by the retailer during the previous year or as a result of previous negotiations with the supplier.
They are received based on purchases of the manufacturer’s products by the retailer, not on sales
of those products by the retailer to the retailer’s customers. Therefore, these allowances are not
includible in the retailer’s gross proceeds of sales and are not subject to sales tax. In contrast to
the above “manufacturer’s rebate” example, if the retailer were to give each customer a 15 cent
discount on a product that normally sells for $1.00 when a customer uses his or her card to buy
the product, the measure of the sales tax on the sale would be 85 cents.

SOUTH CAROLINA DEPARTMENT OF REVENUE
s/Burnet R. Maybank III
Burnet R. Maybank, III, Director
Columbia, South Carolina
July 8
, 1998

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