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

[email protected]

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

1. Are manufacturer rebates included in the total gross receipts subject to
   Colorado sales tax?

2. Are rebates provided by utility companies included in the total gross receipts
   subject to Colorado sales tax?

3. 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.

4. |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
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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.

1. Are manufacturer rebates included in the total gross receipts subject to Colorado sales
   tax?

2. Are rebates provided by utility companies included in the total gross receipts subject to
   Colorado sales tax?

3. 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.

4. \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