When a customer gets a rebate from a manufacturer, utility, or government, is Colorado sales tax calculated on the full price or the price after the rebate?
Plain-English summary
A retailer that runs rebate programs on qualifying merchandise asked whether Colorado sales tax is figured on the price before or after the rebate — and whether the answer changes for rebates funded by utilities or government agencies. The Department's clear (non-binding) answer: rebates are part of the tax base, so tax is calculated on the full price, before the rebate. (This is an updated letter — originally issued June 1, 2011, and amended February 6, 2018, with a minor wording deletion that the Department said "does not change the guidance.")
The reasoning is the "purchase price" definition. Colorado levies sales tax on the "purchase price paid or charged" (§ 39-26-104(1)), and "purchase price" expressly includes "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" (Reg. 39-26-102.7(a)(1), (3)). A rebate is exactly that: a third party covering part of what the customer would otherwise pay. So manufacturer rebates are in the tax base.
Crucially, the same logic applies to utility-company and governmental rebates — they're "functionally the same as a rebate issued by a manufacturer." A portion of the purchase price is being paid by "someone else," and that portion stays in the tax base. The Department pointed to GIL-08-022, where federal rebates for TV converter boxes were likewise included.
The retailer had also moved from mailed-check rebates (customer submits a form and proof of purchase, gets a check) to instant point-of-sale rebates (the store gives the discount immediately and is reimbursed by the third party). Either way, the tax base is the full price — the delivery mechanism doesn't change the result.
What this means for you
Retailers offering rebate promotions
Charge sales tax on the full, pre-rebate price whenever the rebate is funded by a third party — a manufacturer, a utility, or a government agency. This holds for both traditional mail-in rebates and instant point-of-sale rebates where you're reimbursed by the third party. Don't reduce the taxable amount by the rebate.
Contrast: your own discounts
The result flips only when you absorb the discount with no third-party reimbursement — that's a true price reduction (like a store coupon), and tax is figured on the reduced price. The dividing line is whether someone else is paying you back for the discount.
Accountants and tax professionals
This is the rebate counterpart to the coupon rule: third-party-funded reductions (manufacturer/utility/government rebates, manufacturer coupons) stay in the base; seller-absorbed reductions (store coupons, markdowns) come out. Note the 2018 update status of this GIL and that instant POS rebates are treated the same as mail-in rebates.
Common questions
Q: Is Colorado sales tax calculated before or after a manufacturer's rebate?
A: Before. Because a third party (the manufacturer) reimburses the retailer for the rebated portion, the tax base is the full purchase price; the rebate isn't subtracted.
Q: Does it matter if the rebate comes from a utility or the government instead of a manufacturer?
A: No. Utility and governmental rebates are treated the same as manufacturer rebates — they pay part of the purchase price, so that part stays in the tax base.
Q: What about instant point-of-sale rebates versus mail-in checks?
A: Same answer. Whether the customer gets a check later or an instant discount at checkout, the tax is figured on the full price, because the store is reimbursed by the third party.
Q: Can I rely on this letter?
A: It's a General Information Letter — non-binding general guidance (here, an updated 2018 version of a 2011 letter). It states the Department's view, but a binding answer on your facts would require a private letter ruling.
Citations and references
Statutes, rules, and references:
- § 39-26-104(1), C.R.S. (sales tax on the "purchase price paid or charged")
- Reg. 39-26-102.7(a)(1), (3) (definition of "purchase price"; third-party reimbursement)
- GIL-08-022 (federal TV-converter-box rebates included in the tax base)
Related rulings
- [[gil-11-006-taxability-of-manufacturer-s-coupons]] — coupon counterpart (manufacturer vs. store)
- [[plr-11-005-private-letter-ruling-re-local-sales-tax]] — price adjustments and the tax base
- [[gil-11-002-taxability-of-personal-property-tax-sales-tax]] — what's included in the taxable amount
Source
- Landing page: https://tax.colorado.gov/sales-use-tax-letter-rulings
- Original PDF: https://tax.colorado.gov/sites/tax/files/documents/GIL-11-009.pdf
Original ruling text
COLORADO
Department of Revenue
iS
Taxation Division
Office of Tax Policy
P.O. Box 17087
Denver, CO 80217-0087
GIL-11-009 (UPDATED)
February 6, 2018
XXXXXX
XXXXXX
XXXXXX
ATTN: XXXXXX
Re: Taxability of manufacturer rebates
Dear XXXXXX,
You submitted on behalf of XXXXXX (“Company”) a request for guidance on the
application of sales tax on manufacturer rebates. 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 >
FY1/Publication > Rulings.
The Department issued a General Information Letter to you dated June 1, 2011 in
response to your request. The Department has had an opportunity to review the
letter and issues this amended letter, which deletes, “either directly to the customer
or indirectly through the utility”, in the first sentence of the second paragraph under
the Discussion section. This amendment does not change the guidance provided
in the original letter.
Issue
-
Are manufacturer rebates included in the total gross receipts subject to
Colorado sales tax? -
Are rebates provided by utility companies included in the total gross receipts
subject to Colorado sales tax? -
Ifa utility company’s rebate program is funded by a state or local government
agency, would sales tax be applicable to the total purchase price or the
purchase price after the rebate is deducted. -
|f arebate is provided directly by a state or local government agency, would
sales tax be applicable to the total purchase price or the purchase price after
the rebate is deducted.
Background
Company participates in rebate programs upon the purchase of qualifying
merchandise. In order to receive the rebate, customers are generally required to
submit a rebate form and proof of purchase to the third party offering the rebate.
After the third party receives and verifies the necessary documentation, a check
will be sent directly to the qualifying customer.
However, Company has started to provide customers with instant point of sale
rebates; thus, qualifying customers are no longer required to submit the rebate
forms and proof of purchase to the third parties providing the rebate. Company is
now responsible for submitting the necessary sales documentation to the third
party, who will reimburse Company for the instant point of sale rebate provided to
the customer. The question at issue is whether the purchase price before or after
deducting the rebate is applicable to the sales tax calculation?
Discussion
Colorado sales tax is levied on the “purchase price paid or charged.” §39-26-
104(1), C.R.S. “Purchase price:” means “the amount of money received or due in
cash and credits [and] ... [alny 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 ...” Department regulation 39-26-102.7(a)(1)
and (3). Thus, manufacturer rebates are included in the tax base when calculating
the sales tax.
Rebates issued by a utility company or by a governmental entity are functionally
the same as a rebate issued by a manufacturer. These rebates are used to pay a
portion of the purchase price and must be included in the tax base, just as a
payment of some or all the purchase price by “someone else” is included in the tax
base. See, e.g., Department GIL-08-022 (federal rebates for purchases of TV
converter boxes included in tax base).
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. | 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.
| hope this is helpful. Please feel free to contact me if you have any questions.
Sincerely,
DR 4010A (06/11/14)
Office of Tax Policy
Colorado Department of Revenue
DR 4010A (06/11/14)
STATE OF COLORADO
State Capito! Annex {fES
1375 Sherman Street, Room 409 ‘a a}
Denver, Colorado 80261 aCe Lh
Phone (303) 866-3091
FAX (303) 866-2400
John Hickenlooper
Governor
GIL-11-009
Roxanne Huber
June 1, 2011 Executive Director
».0.9.0.9.9.9.6.0.6.0 6.0.6.6 4
KXKKKKKKKKKK KKK
KKKXKKKKKKKKKKKKKK
ATTN: XXXXXXXXXKXXK
Re: Taxability of manufacturer rebates
Dear XXXXXXOOXXKKXK,
You submitted on behalf of XXXXXXXXXX (“Company”) a request for guidance on the
application of sales tax on manufacturer rebates. The department issues general information
letters and private ietter 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 24-35-103.5. 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.
-
Are manufacturer rebates included in the total gross receipts subject to Colorado sales
tax? -
Are rebates provided by utility companies included in the total gross receipts subject to
Colorado sales tax? -
If a utility company's rebate program is funded by a state or local government agency,
would sales tax be applicable to the total purchase price or the purchase price after the
rebate is deducted. -
\f a rebate is provided directly by a state or local government agency, would sales tax be
applicable to the total purchase price or the purchase price after the rebate is deducted.
Background
Company participates in rebate programs upon the purchase of qualifying merchandise. In
order to receive the rebate, customers are generally required to submit a rebate form and
proof of purchase to the third party offering the rebate. After the third party receives and
verifies the necessary documentation, a check will be sent directly to the qualifying customer.
However, Company has started to provide customers with instant point of sale rebates; thus,
qualifying customers are no longer required to submit the rebate forms and proof of purchase
to the third parties providing the rebate. Company is now responsible for submitting the
necessary sales documentation to the third party, who will reimburse Company for the instant
point of sale rebate provided to the customer. The question at issue is whether the purchase
price before or after deducting the rebate is applicable to the sales tax calculation?
Discussion
Colorado sales tax is levied on the “purchase price paid or charged.” §39-26-104(1), C.R.S.
“Purchase price:” means “the amount of money received or due in cash and credits [and] ...
{a]ny 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 ...”
Department regulation 39-26-102.7(a)(1) and (3). Thus, manufacturer rebates are included
in the tax base when calculating the sales tax.
Rebates issued by a utility company or by a governmental entity, either directly to the
customer or indirectly through the utility, are functionally the same as a rebate issued by a
manufacturer. These rebates are used to pay a portion of the purchase price and must be
included in the tax base, just as a payment of some or all the purchase price by a “someone
else” is included in the tax base. See, e.g., Department GIL-08-022 (federal rebates for
purchases of TV converter boxes included in tax base).
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. | 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 conceming the redacted letter.
| hope this is helpful. Please feel free to contact me if you have any questions.
Sincerely,
Neil L. Tiliquist
Colorado Department of Revenue