When a customer applies a $40 federal NTIA coupon toward a TV converter box, does Colorado sales tax apply to the full price or the reduced price the customer pays?

Plain-English summary

This letter addresses the federal NTIA (National Telecommunications and Information Administration, U.S. Department of Commerce) digital-TV converter-box coupon program, which gave each household two coupons worth up to $40 each toward a converter box. A retailer asked: when a $59.99 box ends up costing the customer $19.99 after the coupon, is Colorado sales tax computed on the full $59.99 or on the $19.99?

The Department answered $59.99 — the full price. Regulation (39-)26-102.7(a)(3) defines "purchase price" to include "any consideration valued in money, such as trading stamps or coupons whereby the manufacturer or someone else reimburses the retailer for part of the purchase price." Because a third party (here the federal government, through NTIA) reimburses the retailer for the coupon, that amount is gross receipts to the retailer and stays in the taxable base. A coupon redeemed by any party other than the retailer itself counts toward the price.

This is the same conclusion the Department reached in the companion converter-box coupon letter — third-party-funded coupons don't shrink the tax base.

What this means for you

Retailers accepting government or manufacturer coupons

If a third party (the government, a manufacturer) pays you back for a coupon, charge sales tax on the full pre-coupon price, then apply the coupon to what the customer owes. The customer pays less cash, but the tax is on the whole price because you're made whole by the third party. Only a discount you fund yourself (with no reimbursement) reduces the taxable amount.

Practical billing

Compute tax on the item's sticker price first; subtract the coupon afterward. Taxing only the post-coupon cash the customer hands over under-collects when the coupon is reimbursed by someone else.

Common questions

Q: A customer used a $40 NTIA/government coupon — do I tax the full or reduced price?
A: The full price. A coupon reimbursed by a third party (the federal government) is part of the taxable purchase price, so tax is computed before subtracting the coupon.

Q: What if it were my own store discount instead?
A: A discount you fund yourself, with no reimbursement, reduces the price and the tax. The test is whether a third party reimburses you for the coupon.

Q: Can I rely on this letter?
A: No. It's a General Information Letter — general guidance, not binding on the Department.

Citations and references

Regulation:
- Department Regulation (39-)26-102.7(a)(3) — "purchase price" includes consideration valued in money, such as coupons whereby the manufacturer or someone else reimburses the retailer

Related Colorado tax-base letters:
- [[gil-08-017-federally-funded-coupon-taxability]] — companion converter-box coupon letter (same result)
- [[gil-08-011-hostess-dollars]] — credits (value the retailer receives) are in the base

Source

• Landing page: https://tax.colorado.gov/sales-use-tax-letter-rulings
• Original PDF: https://tax.colorado.gov/sites/tax/files/documents/GIL-08-022.pdf

Original ruling text

Office of Tax Policy
P.O. Box 17087
Denver, CO 80217-0087
[email protected]

GIL-08-022
September 16, 2008
XXXXXXXXXXXXX
XXXXXXXXXXXXX
XXXXXXXXXXXXX.
XXXXXXXXXXXXX
XXXXXXXXXXXXX
Re:

Taxation of NTIA Coupon

Dear XXXXXXXXXX:
This letter is in response to your inquiry of August 14, 2008. In your letter, you ask
about the tax treatment regarding the Department of Commerce’s National
Telecommunications and Information Administration (NTIA) program the enables each
household to receive two coupons that are each good for up to $40 off the purchase of a
television converter box. As an example, you state that a converter costing $59.99
would only cost $19.99 to the ultimate purchaser. Your question is whether the coupon
reduces the taxable base of the converter. In other words, in the example, does tax
apply to the full $59.99 or to the $19.99?
Under Colorado sales tax law, the tax would apply to the full amount of $59.99.
Colorado Regulation (39-) 26-102.7(a)(3) defines “purchase price” as:
Any consideration valued in money, such as trading stamps or coupons
whereby the manufacturer or someone else reimburses the retailer for part of
the purchase price and other media of exchange. (emphasis added).
Thus coupons redeemed by any party (other than the retailer) would be gross receipts
to the retailer and be included in the tax base for the transaction. In your example, the
tax would apply to the full $59.99 price.
Please note that the Department of Revenue administers state and state-collected city
and county sales taxes and special district sales and use taxes, but does not administer
sales and use taxes for self-collected home-rule cities and counties. Visit our web site at
www.revenue.state.co.us for more information about state and local sales taxes.
Pursuant to state law, the Department is required to make publish redacted responses
to requests for general informational letters. Your letter requesting this informational
letter

is not made public. See, §24-35-103.5(13), C.R.S. The regulation governing
informational letters is available on our web site at:
http://www.revenue.state.co.us/taxstatutesregs/3921reg24-35-103.5.html. I enclose a
proposed redacted version of this letter. Please contact me within 60 days from the
date of this letter if you have any questions, comments or concerns about the redacted
letter.
I hope this is helpful. Please feel free to contact me if you have any questions.
Sincerely,
Office of Tax Policy
Colorado Department of Revenue