The California State Board of Equalization has released an ongoing series of publications to help taxpayers better understand tax and fee policies. Periodically we will highlight a publication on my Growth and Tax blog.
As we look forward to the Presidents’ Day weekend, many businesses in California are advertising deals and discounts in their stores. To help clarify how coupons effect sales tax we would like to spotlight BOE Publication #113 Coupons, Discounts, and Rebates.
In general when taking advantage of a discount or coupon, if the discount is provided by the retailer, and the retailer is not being reimbursed from a third party then the sales tax is due on the reduced selling price of the item. Examples of this would include store distributed coupons, store discount cards, and percentages off merchandise offered by a store. To illustrate, if a store offers $1 off an item that is regularly $10, the taxable sales amount is $9.
In cases where a third party manufacturer is reimbursing the store for the amount off the advertised selling price for purchasing the manufacturer’s product, that discount is included in the total taxable sales. For example, imagine you buy laundry detergent at $10 and use a manufacturer’s coupon that reduces the sale price of an item by $1, bringing the total to $9.The taxable amount of the sale will be $10. This is because the store is still recovering $10 from the sale; $9 from you, and $1 from the manufacturer.
In cases where a retailer matches a manufacturer’s discount, the manufacturer’s coupon total is included in the taxable sale, and the retailer’s discount is non-taxable. Using our last example of $10 laundry detergent, let’s say the store matches the $1 off provided from the manufacturers coupon. In this case, after the two discounts, the price you pay would be $8. The taxable sales amount would be $9 dollars; $8 dollars for the retail sale plus $1 from the manufacturer’s coupon.
These are the most common examples of coupons and discounts. For more examples including rebates and incentives, the full publication can be viewed here: http://www.boe.ca.gov/formspubs/pub113/index.html