Can a seller take a sales tax credit for cash rebates it pays back to customers after the sale, based on volume of business?

Plain-English summary

This letter reaffirms a company's own product rebate program, first reviewed by the Comptroller back in 1992: a company that grants volume-based rebates to its customers (in the original request, funeral directors), remitted quarterly or annually, may exclude those rebated amounts from its sales tax base if properly documented.

The 1992 answer, quoted in full here, laid out the requirements: the sales tax must be refunded to the customer in proportion to the sales price that's refunded, the refund/rebate must actually be paid in cash or credit (not just a price adjustment on paper), and the company can then take a credit on its own tax report for the period the rebate was paid out. In this 1999 follow-up, the company sent in an actual rebate check showing the sales amount refunded and the sales tax amount refunded as separate, stated line items. The Comptroller confirmed that if this check is representative of the company's practice, the credit is properly available.

What this means for you

Retailers and sellers running rebate or loyalty programs

If you rebate part of a customer's purchase price after the sale based on volume or loyalty, you can exclude the rebated tax from your tax base and take a credit on your sales tax report — but only if you can document it properly. The rebate check or documentation should separately state both the sales-price amount being refunded and the sales tax amount being refunded, and the actual refund must be paid (in cash or credit), not just implied.

Accountants and tax professionals

The exclusion is timing-sensitive: the credit is taken "for the period in which the rebate was remitted," not the period of the original sale. Keep the documentation trail (the rebate check itself, showing the split between price and tax) since that's exactly what the Comptroller asked to see and relied on here.

Common questions

Q: Can a seller reduce its sales tax liability for rebates paid to customers after the sale?
A: Yes, if the rebate is properly documented — refunded in proportion to the sales price, paid in cash or credit, and reported as a credit in the period the rebate was remitted.

Q: What does "properly documented" require?
A: Based on the rebate check reviewed in this letter, the refund should separately state the sales amount refunded and the associated sales tax amount refunded.

Q: Does this apply to any rebate program, or just this taxpayer's?
A: This is a company-specific letter (following up on a 1992 letter to the same company) and can be used as the basis of a detrimental-reliance claim only by the taxpayer it was issued to. Other companies' documentation and facts may not match closely enough to get the same result.

Citations and references

No specific Tax Code section or Comptroller rule number is quoted in this letter; the ruling rests on the Comptroller's own prior 1992 opinion (quoted verbatim in the body) regarding the documentation standard for excluding cash rebates from the sales tax base.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9911857L

Original ruling text

November 5, 1999

via fax **

Dear **:

Thank you for your recent fax concerning your product rebate program.

Your firm wrote to the Comptroller's Office on June 30,1992. The rebate
program was described and an opinion was requested concerning whether credit
could be taken for rebated amounts.

On August 14, 1992, our office responded with the following:

"You state that your company offers a program that grants rebates to your
customers (Funeral Directors) based on volume of business with your company.
You state that the actual rebate is remitted to the Funeral Director on a
quarterly or annual basis.

Such cash rebates are excludable from the tax base if properly documented. The
sales tax must be refunded to the customer in proportion to the sales price
refunded on which the tax was collected. The refund/rebate must be in the form
of cash or credit. Your company may take credit on the report form for the
period in which the rebate was remitted."

You have enclosed a copy of a rebate check which indicates that the customer is
refunded for a sales amount and a separately stated amount for associated sales
tax.

I have reviewed both requests and feel that our initial opinion was correct and
that your firm followed the recommendations of this office. If the rebate
check is representative of your business practices, a credit for rebated
amounts should be allowed.

This opinion is based on the facts presented. If there are additional or
different facts, the opinion may change. You may call me toll free at
1-800-531-5441, ext. 5-0613. The direct line is 512/475-0613. You may also
write to Tax Policy Division, Comptroller of Public Accounts.

Sincerely,

Kevin Koller
Tax Policy Division