When a customer uses a coupon, does Colorado sales tax apply to the price before or after the coupon — and does it matter whether it's a manufacturer's or a store coupon?
Plain-English summary
A retail drug store asked whether manufacturer coupons are part of the gross receipts subject to Colorado sales tax — and how to compute tax when a customer uses a manufacturer coupon and pays with food stamps / EBT. The Department gave clear (non-binding) guidance turning on who actually pays the discounted portion of the price.
Manufacturer's coupon → tax on the full price (coupon NOT deducted). When a shopper hands over a manufacturer's coupon, the store later sends it to the manufacturer and gets reimbursed for the coupon's value. So the manufacturer is paying part of the purchase price on the customer's behalf. That's no different from any third party paying part of the price, and sales tax is calculated on the retailer's full purchase price, without subtracting the manufacturer's coupon.
Retailer's (store) coupon → tax on the reduced price. A store coupon is issued by the retailer itself and is simply a price reduction — nobody reimburses the store for it. Like any markdown the store offers to drive sales, it lowers the price, so sales tax is calculated on the post-coupon (reduced) price.
Food stamps / EBT → exempt, so the coupon type is irrelevant. Since October 1, 1987, food purchased with food stamps or an EBT card has been exempt from Colorado sales tax and all local sales taxes, including home-rule cities. Because the sale is exempt, it doesn't matter whether a manufacturer's or retailer's coupon is used. (Only food can be bought with food stamps; non-food items follow the general coupon rules above. See Reg. 39-26-102.4.5 for what counts as food.)
The whole framework comes from Special Regulation 11 (Coupons).
What this means for you
Retailers and point-of-sale systems
Program your registers to treat the two coupon types differently: manufacturer coupons do not reduce the taxable amount (a third party reimburses you), while store coupons do (you're just lowering your price). Getting this backward either over- or under-collects tax. For food bought on SNAP/EBT, the sale is exempt regardless of coupon.
Shoppers
If you use a manufacturer's coupon, you'll still pay sales tax figured on the pre-coupon price — because the manufacturer, not you, covers that part of the price. A store's own coupon lowers both your price and the tax. Buying food with EBT means no sales tax at all.
Accountants and tax professionals
The dividing line is reimbursement: a discount funded by a third party (manufacturer) stays in the tax base; a discount the seller absorbs comes out of it. This is the same principle that governs rebates (see the related ruling). The food-stamp/EBT exemption is total — state and all local, including home rule.
Common questions
Q: Does a manufacturer's coupon lower the sales tax I pay?
A: No. Because the manufacturer reimburses the store for the coupon's value, tax is calculated on the full price as if a third party paid part of it. The coupon isn't deducted from the taxable amount.
Q: What about a store's own coupon?
A: A store (retailer) coupon is a genuine price cut that nobody reimburses, so sales tax is calculated on the reduced, post-coupon price.
Q: How does it work with food stamps or EBT?
A: Food bought with food stamps or an EBT card is exempt from Colorado state and all local sales taxes, so it doesn't matter which kind of coupon is used. Only food qualifies for EBT; non-food items follow the regular coupon rules.
Q: Can I rely on this letter?
A: It's a General Information Letter — non-binding general guidance. It clearly states the Department's view, but a binding answer on your facts would require a private letter ruling.
Citations and references
Statutes and rules:
- Special Regulation 11 (Coupons), 1 CCR 201-5
- § 39-26-707, C.R.S. (food exemption; food-stamp/EBT exemption since 10/1/1987)
- Reg. 39-26-102.4.5 (definition of food under the federal Food Stamp Program)
Related rulings
- [[gil-11-009-taxability-of-manufacturer-rebates]] — rebates (manufacturer/utility/government) stay in the tax base
- [[plr-11-005-private-letter-ruling-re-local-sales-tax]] — price adjustments and the tax base
- [[plr-11-008-private-letter-ruling]] — food exemption and SNAP/WIC
Source
- Landing page: https://tax.colorado.gov/sales-use-tax-letter-rulings
- Original PDF: https://tax.colorado.gov/sites/tax/files/documents/GIL-11-006.pdf
Original ruling text
Office of Tax Policy
P.O. Box 17087
Denver, CO 80217-0087
[email protected]
Gll-11-006
April 26, 2011
xxxxxxxxxxxxxxxxxxxx
xxxxxxxxxxxxxxxxxxxx
xxxxxxxxxxxxxxxxxxxx
Attention: XXXXXXXXXXXXX
Re: Taxability of Manufacturer's Coupons
Dear XXXXXXXXXXX,
You submitted on behalf of XXXXXXXXXX ("Company") a request for guidance on the
application of sales tax on manufacturer coupons on November 16, 2009. The department
discontinued issuing general information letters in late 2009 due to budgetary cutbacks, but
has recently reinstated issuing these letters. The department issues general information
letters and private letter rulings. A general information letter provides a general overview of
the relevant tax issues and is not binding on the department. A private letter ruling provides
a specific determination for a specific set of facts, is binding on the department but not the
taxpayer, and requires payment of a fee. For more information about general information
letters and private letter rulings, please see Department regulation 24-35 103.5 at
www.taxcolorado.org >FYI/Publication> Rulings.
The department initially treats your request as one of a general information letter. If you
would like the department to issue a private letter ruling on the issues you raise, you can
resubmit a request and fee in compliance with regulation 24-3>103.5. It is important to
remember that general information letters, such as this one, are general discussions of tax
law and are not a determination of the tax consequence of any particular action or inaction.
Issue
Are manufacturer coupons included in the gross receipts subject to Colorado sales tax?
Background
Company is a retail drug store, and asks whether manufacturer coupons are included in the
total gross receipts upon which Colorado sales tax is levied. In addition, Company asks how
sales tax is calculated when a customer uses manufacturer's coupons and pays for the
article with food stamps or an Electronic Benefits Transfer (EBTI card.
Discussion
A manufacturer's coupon is issued by the manufacturer to consumers who present the
coupon to the retailer as partial payment of the purchase price. The retailer, in tum, presents
the coupon to the manufacturer who pays the retailer the coupon value. In effect, the
manufacturer is paying a portion of the purchase price charged by the retailer to the
consumer. This transaction is theoretically no different than one in which a consumer enlists
the aid of a third party who pays on behalf of the consumer a portion of the retailer's
purchase price. In both cases, sales tax is calculated on the retailer's full purchase price
without deducting the manufacturer's coupon.1
A retailer's coupon is different from a manufacturer's coupon. A retailer's coupon is issued
by the retailer and is essentially a reduction in the purchase price charged by the retailer for
goods. Importantly, the retailer is not reimbursed for the price reduction by a third party, such
as a manufacturer. As is the case when the retailer reduces its price to entice sales, sales
tax is calculated on the reduced purchase price - i.e., the full purchase price minus the value
of the retailer's coupon.2
Since October 1, 1987, the sale of food purchased with food stamps or EBT cards pursuant
to the federal Food Stamp Program has been exempt from Colorado sales tax and from all
local sales taxes, including those of home rule municipalities.3 Because the sale is exempt, it
does not matter for sales tax purposes whether the consumer presents a manufacturer's
coupon or retailer's coupon. We note in passing that only food items can be purchased with
food stamps and, therefore, the purchase of items other than food fall within the general rules
discussed above. For more information about what qualifies as food under the federal Food
Stamp program, see Department regulation 39-26-102.4.5.
Miscellaneous
Pursuant to state law and department regulation 24-35-103.5. noted above, the Department
will make public a redacted version of this letter. Your letter requesting this general
information letter is not made public. 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 objection concerning 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
1 Special Regulation 11 (Coupons), 1 CCR 201-5.
2
3
Special Regulation 11 (Coupons), 1 CCR 201-5
§39-26-707, C.R.S. and Colo. Code Regs. 39-26-102.4.5
2