How did California distinguish a retailer's own free coupon, a manufacturer coupon, and a gift certificate when measuring a taxable retail sale?

Plain-English summary

A retailer's own coupon distributed without charge produced a true discount. Tax did not apply to the amount taken off, regardless of “worth $2” or “$2 off” wording.

A manufacturer or other third-party coupon was different. The retailer's tax measure generally included both the customer payment and the reimbursement collected from the third party.

Gift certificates were not taxed when sold. At redemption, however, certificate value was credit-memorandum consideration included in the taxable measure rather than a discount.

What this means for you

Identify who issued the instrument, whether the retailer receives outside reimbursement, and whether stored value pays the price or reduces it.

Citations and references

• California Revenue and Taxation Code § 6012
• CPA's Nov. 6, 1978 inquiry about coupons tendered to retailers with tangible-property purchases — question described; letter, examples, and attachments not reproduced in the official PDF
• Retailer-issued free coupons, manufacturer or third-party coupons and reimbursements, and gift-certificate sale and redemption — general instrument categories and treatment supplied; coupon and certificate forms, distribution terms, invoices, reimbursement agreements and claims, redemption records, accounting entries, and returns not reproduced in the official PDF
• Official Annotation 280.0350's retailer-coupon, third-party reimbursement, and gift-certificate summary — annotation normalizes the PDF's “same segment,” “manufacturer's,” and omitted “the” wording and supplies no additional transaction or implementation record
• Possible later transaction, return filing, audit, assessment, payment, refund claim, appeal, or other agency action — not supplied in the official PDF

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Annotation page: Annotation 280.0350
• Original supporting opinion: 280.0350 PDF

Original ruling text

280.0350

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION
1020 N STREET, SACRAMENTO, CALIFORNIA
(P.O. BOX 942879, SACRAMENTO, CALIFORNIA 94279-0001)
(916) 445-2641

December 19, 1978

P--- M. R--Certified Public Accountant
P--- T--XXXX S. --- Avenue
---, CA XXXXX
Attn: Mr. J--- G---

Gentlemen:

This is in response to your letter of November 6, 1978. We apologize for the delay in our reply. You have inquired as to how sales tax applies in certain situations where coupons are tendered to a retailer at the time of purchase of tangible personal property. Under the California sales tax law, tax applies to the “gross receipts” from the sale of tangible personal property sold at retail. Revenue and Taxation Code Section 6012 defines “gross receipts” to mean the total amount of the sale price of the retail sales of retailers, valued in money, whether received in money or otherwise. Discounts allowed and taken are not includable in gross receipts. If a retailer distributes coupons to the public or same segment of the public without charge, tax does not apply to the discount allowed upon redemption of the coupon. It is immaterial that the coupon may contain language such as ‘This coupon is worth $2.00 toward the purchase of” or “This coupon is good for $2.00 off.” In either case, the reduction in price is treated as a discount, and tax does not apply to the amount of the discount. The application of the tax is different where the retailer redeems coupons issued by a manufacturer’s or by another third party. Generally, the measure of tax includes the amount actually collected from the consumer as well as amount collected by the retailer from the manufacturer or other third party.

P--- M. R---

2

December 19, 1978
280.0350

With respect to gift certificates, tax does not apply to the sale of the certificates themselves. However, upon redemption of the gift certificates the value of the certificate is includable in the measure of tax. In other words, gift certificate transactions are not treated as discount transactions and the gift certificate is regarded as a credit memorandum. Very truly yours,

Gary J. Jugum
Tax Counsel
j:alicetilton

bc:

--- --- – District Administrator