How did coupons and discount cards affect South Carolina's taxable sales price under RR 99-9?

Plain-English summary

South Carolina Revenue Ruling #99-9 said the sales-tax base depended on the total value the retailer received because of the retail sale.

For a manufacturer coupon, the taxable gross proceeds included both the customer's payment and the manufacturer's reimbursement. A $5 item remained taxable on $5 when the customer paid $4 and the manufacturer reimbursed $1. The ruling excluded a separate coupon-processing allowance under the Department's longstanding policy.

For a coupon issued and funded by the retailer itself, only the reduced amount paid by the customer was taxable because the retailer received no third-party reimbursement.

Discount-card allowances followed the same sale-based distinction. A supplier allowance based on the retailer's prior wholesale purchases or negotiations was not tied to a particular retail sale, so tax was based on the discounted customer price. A supplier payment triggered by the retailer's sale of the discounted item was part of gross proceeds, so the customer payment plus supplier reimbursement was taxable.

What this means for you

Retailers

Identify who funds the discount and why the payment is made. A store-funded price reduction differs from a manufacturer-funded reimbursement tied to the sale.

Loyalty and discount-program operators

The label "discount" did not control. The ruling looked for a direct connection between the customer's purchase and money the retailer received from a supplier or manufacturer.

Accountants and tax professionals

Reconcile customer receipts and third-party reimbursements at the transaction level. Purchase-volume allowances were outside gross proceeds in the ruling, while sale-triggered reimbursements were included.

Common questions

Q: Is tax charged before or after a manufacturer coupon?
A: Under RR #99-9, tax was based on the customer payment plus the manufacturer's coupon reimbursement—generally the full selling price.

Q: Is tax charged after a store's own coupon?
A: Yes. The taxable amount was the reduced price actually received from the customer when the retailer received no reimbursement.

Q: Was a manufacturer's coupon-processing fee taxable?
A: The ruling said no under the Department's longstanding administrative policy, even though the coupon reimbursement itself was included.

Q: Do supplier allowances always enter gross proceeds?
A: No. An allowance based on the retailer's purchases was not included. A reimbursement based on the particular retail sale was included.

Q: Does RR 99-9 automatically decide modern loyalty-point programs?
A: No. It provides a funding-and-transaction framework, but current programs and law must be analyzed on their own facts.

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 — definition of gross proceeds of sales
• Meyers Arnold v. South Carolina Tax Commission, 285 S.C. 303, 328 S.E.2d 920 (1985) — sale-related receipts discussed by the ruling
• SC Revenue Ruling #98-15 — superseded by RR #99-9

Source

• Landing page: SC Advisory Opinion Search
• Original PDF: RR99-9.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 #99-9

SUBJECT:

Coupons and Discount Cards
(Sales Tax)

EFFECTIVE DATE:

Applies to all periods open under the statute.

SUPERSEDES:

SC Revenue Ruling #98-15 and all previous documents and any oral
directives in conflict herewith.

REFERENCE:

S.C. Code Ann. Section 12-36-910 (Supp. 1998)
S.C. Code Ann. Section 12-36-90 (Supp. 1998)

AUTHORITY:

S.C. Code Ann. Section 12-4-320 (Supp. 1998)
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:
Based upon the facts set forth below, it is the department’s opinion that:
1.

COUPONS:

(a)

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

1

Note: If the retailer receives any additional money from the manufacturer as a result of
accepting and processing the manufacturer’s coupon (i.e. a processing allowance), the
additional money, based on longstanding administrative policy, is not a part of “gross
proceeds of sale” and therefore not subject to the sales 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 $5.00. The 8 cent processing fee is not a part of “gross proceeds of sale”
and therefore not subject to the sales tax
(b)

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.

2.

DISCOUNT CARD PROGRAMS:

(a)

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.

(b)

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:
1.

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.
2

While there may be other types of coupons, this ruling will only consider two types.
(a)

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 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.

(b)

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.

2.

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.
(a)

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.

3

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 electronically-readable 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.
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.
(b)

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:
1.

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;
4

(iii) interest paid;
(iv) losses;
(v)

transportation costs;

(vi) manufacturers or importers excise taxes imposed by the United 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.

5

Therefore, but for the sales, the retailer would not receive the reimbursement from the
manufacturer's coupon.
However, it has been the department’s longstanding policy not to include the processing fees
paid with respect to a manufacturer’s coupon in “gross proceeds of sales.” Administrative
interpretations of statutes by the agency charged with their administration and not expressly
changed by the legislative body are entitled to great weight. Marchant v. Hamilton, 279 S.C.
497, 309 S.E. 2d 781(1983). When as in this case, the construction or administrative
interpretation of a statute has been applied for a number of years and has not been changed by
the legislature, there is created a strong presumption that such interpretation or construction is
correct. Ryder Truck Lines, Inc. v. South Carolina Tax Commission, 248 S.C. 148, 149 S.E.2d
435 (1966); Etiwan Fertilizer Company v. South Carolina Tax Commission, 217 S.C. 354, 60
S.E.2d 682 (1950). See Statutes Key Nos. 219(3) & 223.5(2).
2.

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.”

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/ Elizabeth A. Carpentier
Elizabeth A. Carpentier, Director
Columbia, South Carolina
August 30
, 1999

6