A store advertises a computer at $649, but gives an instant $400 rebate at the time of purchase if the customer signs a 3-year internet provider contract — so the customer only pays $249, and the $400 never appears on the customer's bill or account. Is Texas sales tax due on the $649 advertised price or the $249 actual price paid?

Plain-English summary

A Comptroller staff member wrote in describing a situation observed at a retail store: a computer advertised at $649, with an INSTANT rebate of $400 given at the time of purchase if the customer agrees to a 3-year internet provider contract — so the customer pays only $249 out of pocket. The $400 rebate is never billed to the customer, never appears on the customer's account, and the customer doesn't need to separately claim it from the computer manufacturer. The question: is Texas sales tax due on the full $649 advertised price, or the $249 actually paid?

The Comptroller's answer: sales tax is due on the discounted price of $249, not the $649 advertised price. This follows a standing rule from an earlier Comptroller letter (8810L0904F12): effective October 1, 1988, cash discounts taken at the time of the sale are excluded from the tax base — this covers cash discounts, discount coupons, and store rebates alike — as long as the sales price is actually reduced AT THE TIME OF THE SALE (as opposed to, for example, a rebate the customer has to separately mail in and claim after the fact).

What this means for you

Retailers offering instant, point-of-sale rebates or bundled-contract discounts

If your rebate or discount genuinely reduces the price the customer pays at the register — rather than being processed as a separate after-the-fact reimbursement — you only owe sales tax on the reduced price. This applies whether the discount comes from a cash discount, a coupon, or a store-funded instant rebate.

Accountants and tax professionals

The key fact that controls this outcome is TIMING: the discount/rebate has to reduce the price AT THE TIME OF SALE. This is a useful contrast to mail-in manufacturer rebates processed after the sale, which (per other rulings in this corpus) do NOT reduce the taxable sales price, since the customer is taxed on the full price paid at the register regardless of a later reimbursement they separately claim.

Common questions

Q: Is sales tax due on the advertised price or the actual price paid after an instant rebate?
A: The actual, discounted price paid — here, $249, not the $649 advertised price.

Q: Does it matter whether the rebate is called a "cash discount," "coupon," or "rebate"?
A: No — all three are treated the same way for this purpose, per the 1988 letter (8810L0904F12) this ruling cites.

Q: What's the key requirement for the discount to reduce the taxable price?
A: The sales price must actually be reduced AT THE TIME OF THE SALE — not through a rebate claimed or processed afterward.

Q: Can I rely on this letter for my own retail rebate/discount program?
A: No. This opinion is rendered based on the facts presented, and additional or different facts may change the opinion; it can be relied on only by the taxpayer it was issued to.

Citations and references

No new statutes or rule numbers were cited in this letter; it applies the standing rule from Comptroller letter 8810L0904F12 (cash discounts taken at time of sale excluded from the tax base, effective 10/1/1988).

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9912929L

Original ruling text

December 9, 1999

[email protected]

Dear Ms. Cubberly:

Thank you for your recent email, which is restated in part with response below.

"Per our conversation this morning, here is a recap of the situation I ran
across at STORE. * computer for sale at $649 advertised price. If you
agree to a 3 year * Internet provider contract, STORE gives you an
instant rebate at the time of purchase of $400 on the $649. Therefore, the
only money the customer pays is the $249 price. You are not required to obtain
the rebate from ** COMPUTER, nor is it charged to your account and then
credited. The $400 never appears on the customer's billing.

Citing letter 8810L0904F12 by Tax Policy Division, it states "Effective October 1,
1988, all cash discounts that are taken at the time of the sale are excluded
from the tax base. These discounts may be cash discounts, discount coupons,
store rebates, etc; however, the sales price must be reduced at the time of the
sale."

The customer never actually knows where the rebate is coming from, only that
the customer never gets charged the additional $400. Please review this
situation and let me know where we stand."

Response: Sales tax is due on the discounted price of $249 rather than the
$649 advertised price. Please feel free to give a copy of this response to the
retailer.

This opinion is rendered based on the facts presented. If there are additional
or different facts, the opinion may change.

You may also write to Tax Policy, Comptroller of Public Accounts. The email
address is .

Sincerely,

Tax Policy Division