Coupons Can Create Sales Tax Confusion

Coupons can create sales tax confusion. In general, sales tax is based upon the total amount of value received by a seller. A manufacturer’s coupon generally provides for reimbursement and is therefore generally included in the amount taxed. Store coupons and discounts generally do not provide reimbursement for a store. They just reduce the amount of money a store receives so they are generally not included in the amount taxed.

Many sellers and their advisors don’t realize they should be collecting sales tax for the entire value received on a transaction vs on the amount paid by a consumer for said product

Understandably this can seem complex. At first, it may seem that the sales tax you charge your consumers should be based on the amount they pay. However, the states generally want the sales tax based on the total value YOU as the seller receives. This is why sellers have at times NOT charged sales tax for the full value of a product when working with a manufacturer’s rebate. 

This under-collection of tax can add up over time and can create huge issues

A very recent public example of this is B&H Photo and Electronics, a retailer located in NYC. In November, the attorney general for the state of New York filed suit against the retailer for failing to collect and remit tax on the reimbursements it received from the manufacturer’s “instant rebates”. The suit alleges that B&H owes $7,000,000 in back tax over the course of 13 years. We don’t know what the outcome will be, but New York is pretty clear on the issue, as are most states, and this could have been avoided with a little knowledge.

Not all coupons and discounts are treated the same

In direct contrast to manufacturer's coupons are store coupons and discounts. If the store selling a product offers a discount, the sales tax paid by a customer is on that discounted price. Most consumers will not notice a difference in the price of the sales tax they pay, but if they do, a simple explanation can go a long way! 

The waters of sales tax can be murky and deep. This is only one of the myriad examples of “what you don’t know can hurt you”

If you have questions or need clarification regarding any other state tax issues please reach out! We offer a wide variety of consultations and other services. We are happy to help you figure out what you need to move forward.

By: Ellie Moffat

This blog is intended for educational purposes and not as tax advice. Tax policies and procedures change frequently, so specific information, such as thresholds, rates, etc. included in this blog may have changed since it was originally published. Please request a consultation for more in-depth information.