Did a South Carolina grocery loyalty-card discount reduce the taxable sale price in 1998?

Plain-English summary

A representative asked whether Food Lion could charge sales tax on the full shelf price of an item after a customer used a bonus card to obtain a lower price. The Attorney General agreed with the Department of Revenue's distinction: when the retailer gave a true discount and no third party reimbursed it, the taxable sale amount was the reduced price. When a manufacturer reimbursed the retailer for a coupon, the retailer's gross proceeds were not reduced in the same way.

The letter applied the 1998 sales tax provisions defining gross proceeds and excluding cash discounts allowed and taken on sales. It did not determine Food Lion's actual reimbursement arrangements for a particular purchase. Its rate and statutory analysis are historical.

Currency note

This opinion was issued in 1998. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

Common questions

Q: Was sales tax on a store-funded bonus-card price based on the shelf price?
A: The AG said no, if the retailer was not reimbursed for the reduction. The reduced sale price was the taxable amount in that scenario.

Q: Why did manufacturer coupons get different treatment?
A: The letter explained that reimbursement by a third party meant the retailer still received the fuller gross proceeds of the sale.

Q: Did the letter prove that a particular Food Lion receipt was taxed incorrectly?
A: It described the legal distinction but did not make a factual finding about how a specific discount was funded.

Background and statutory framework

The opinion discussed S.C. Code Ann. Sec. 12-36-910's tax on gross proceeds of retail sales and Section 12-36-90's definition of proceeds, including the cash-discount exclusion in § 12-36-90(2)(a). It agreed with a Department of Revenue letter and an earlier AG opinion on the importance of retailer reimbursement.

Citations and references

• § 12-36-90(2)(a), the cash-discount exclusion quoted in the letter.
• S.C. Code Ann. Sec. 12-36-910, the retail sales tax provision quoted in the letter.
• May 5, 1982 AG opinion, discussed for the treatment of third-party rebates.

Official title

Regarding Food Lion’s charge of sales tax on the full amount of an item prior to any bonus discount.

Requester

The Honorable Herbert Kirsh, Member, House of Representatives

Source

• Landing page: https://www.scag.gov/opinions/opinions-archive/april-6-1998/
• Original PDF: https://www.scag.gov/wp-content/uploads/2013/11/98april6kirsh.pdf

Original opinion text

The State of South Carolina

OFFICE OF THE ATTORNEY GENERAL
. CHARLES MOLONY CON1't':>N
ATIORNEY GENERAL

April 6, 1998

The Honorable Herbert Kirsh
Member, House of Representatives
532-A Blatt Building
Columbia, S. C. 29211

Re:

Informal Opinion

Dear Representative Kirsh:
You have enclosed a copy of a letter you received from Mr. Otis Rawl, Jr., Tax Manager for the South Carolina Department of Revenue. You indicate that "[T]he Food Lion Stores in South Carolina are charging a sales tax on the bonus discount that they give when you give them the little card." By way of example, you note that" ... on a $.99 item [you] ... had the bonus card and bought it for $.79; [you were]. .. charged 5¢ sales tax when it should have been 4¢." In addition, you state that you called one of the lawyers in Salisbury, North Carolina about this, and he told you that he was sending an opinion request from his office regarding this matter. However, no record of any opiniori request to us from Food Lion was located. Therefore, you now seek an opinion regarding Food Lion's charge of sales tax on the full amount of an item prior to any bonus discount. '..

LAW/ANALYSIS

S.C. Code Ann. Sec. 12-36-910 provides that "[a] sales tax, equal to five percent of the gross proceeds of sales, is imposed upon every person engaged or continuing within this State in the business of selling tangible personal property at retail." The term "gross proceeds of sales" means the value proceeding or accruing from the sale, lease, or rental of tangible personal property." Section 12-36-90. Pursuant to§ 12-36-90(2)(a), however, the term does not include "a cash discount allowed and taken on sales." Thus, the issue

REMBERT

c. DENNIS BUILDING

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POST 0FF1CE Box 11549

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COLUMBIA,

s.c. 29211-1549

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TELEPHONE:

803-734-3970

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FACSIMILE: 803-253~6283

The Honorable Herbert Kirsh
Page 2
April 6, 1998

is how the term "cash discount allowed and taken on sales" is to be interpreted in the
~ontext which you have posited.

Mr. Rawl's letter to you of January 28, 1998 interprets this Section (although not by specific reference) as follows:

I
I

[i]f a grocery store discounts product prices as a result of coupons which will be reimbursed by the manufacturer, the grocery store is required to collect the sales tax on the amount of sales as if the coupons had not been presented. In the case of a grocery store which uses a bonus card and reduces the cost of the goods purchased by a percentage, but is not reimbursed for the reduction, the sales tax applies to the reduced amount. This interpretation is consistent with that given this office in Op. Afty. Gen., Op. No. 82-30 (May 5, 1982) with respect to the question of whether or not a manufacturer's rebate to the retail customer effects the gross proceeds of sale or the sales price for purposes of sales or use taxes. Thus, we construed the virtually identical predecessor statutes to§§ 12-36-910 and 12-36-90(2)(a) [§§ 12-35-510 and 12-35-30] by statement of the following:
[s]ection 12-35-510 imposes the tax upon the 'selling at retail' with the tax measured by the seller's 'gross proceeds'. Thus, where the gross proceeds are not reduced the full amount thereof is subject to the tax. However, § 12-35-30 except from the gross proceeds 'cash discounts allowed and taken
[on] sales'. Arguably, where a discount is allowed the purchaser by the seller, the amount of the discount is not subject to the tax since it is never received by the seller. Here, though, the rebate is paid by a third party, an automobile manufacturer. 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 the purchaser, even though the purpose of the payment is to reimburse the purchaser for a part of the purchase price. The gross proceeds accruing to the seller remain the same whether or not a rebate is paid by a third party. See Keystone Chevrolet Company v. Kirk (1978), 69 Ill. 2d 483, 372 N.E.2d 651. It is well recognized that construction of a statute by the agency charged with executing it is entitled to the most respectful consideration [by the courts] and should not be

The Honorable Herbert Kirsh
Page 3
April 6, 1998

overruled absent cogent reasons. Logan v. Leatherman, 290 S.C. 400, 351 S.E.2d 146, J48 (1986)~ Welch v. Public Service Commission, 297 S.C. 378, 377 S.E.2d 133 (S.C. App. 1989). Moreover, deference to the agency's interpretation is highlighted in these situations where the administrative interpretation is longstanding and has been consistently followed. Marchant v. Hamilton, 279 S.C. 497, 309 S.E.2d 781 (S.C. App. 1983). The interpretation rendered to you by Mr. Rawl is apparently one which has been given by the Revenue Department for some time. That interpretation is reasonable and appears to be the one in accord with the language of the statute. Mr. Rawl uses the criteria of whether the grocer (retailer) "will be reimbursed by the manufacturer" as being crucial to determining whether the retailer "is required to collect the sales tax on the amount of sales as if coupons had not been presented." If there is such reimbursement by a third party to the retailer, the tax must be collected on that amount; if the retailer "is not reimbursed for the reduction, the sales tax applies to the reduced amount." In short, if there is a true bonus discount, without reimbursement to the retailer by a third party, then the sales tax lawfully to be collected is only upon the reduced price amount. I concur with Mr. Rawl's reasoning in this regard. With kind regards, I am Very truly yours,

Robert D. Cook
Assistant Deputy Attorney General
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