Did a retailer correctly charge Florida sales tax on the full face value of manufacturer-funded coupons even when aggregate reimbursement could be reduced?

Plain-English summary

The retailer correctly charged sales tax on the full face value of the vendor-funded coupons.

Although the coupons also said “store coupon,” the manufacturer reimbursed the retailer for redeemed coupons, so the ruling treated them as manufacturer coupons rather than unreimbursed store discounts. The Department required tax on the full face value at each sale even when later aggregate reimbursement could be reduced by sales-volume caps, incentive discounts, or shared promotional costs.

What this means for you

The funding arrangement mattered more than the coupon's store-only redemption label. A genuine store coupon with no manufacturer reimbursement reduced the taxable selling price; a manufacturer-funded coupon did not under the law applied here.

Common questions

Q: Why was the coupon's full face value included in the sales price? A: The customer paid part of the price and the manufacturer funded the coupon amount, giving the retailer compensation from two sources.

Q: Did less-than-100% aggregate reimbursement change the tax on individual sales? A: No. Tax was imposed on each transaction at the moment of sale, before the final aggregate reimbursement was known.

Q: Were unreimbursed store coupons treated the same way? A: No. The ruling distinguished true store coupons, for which the retailer receives no manufacturer payment, as reductions in selling price.

Citations and references

• Fla. Stat. §§ 212.02(17), 212.05, 212.06, and 212.07 — sales price and collection at sale
• Fla. Admin. Code r. 12A-1.018 — trade discounts and manufacturer coupons
• Gaulden v. Kirk, 47 So. 2d 567 (Fla. 1950) — sales tax measured by dealer compensation
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 95A-011

Original ruling text

Mar 29, 1995

Re: TAA 95A-011
Sales Tax - Trade Discounts and Manufacturers Coupons Rule 12A-1.018, F.A.C. ss. 212.02, 212.05, 212.06, and 212.07, F.S.

Dear :

Your letter of September 16, 1994, supplemented by a second letter dated October 25, 1994, requested a Technical Assistance Advisement on the application of the sales tax to the above referenced matter. This response to your request constitutes a Technical Assistance Advisement under Chapter 12-11, Florida Administrative Code (F.A.C.), and is issued to you under the authority of s. 213.22, Florida Statutes (F.S.).

SUMMARY

The question presented is whether a nationwide store chain ("the Company" or "the dealer") properly charged sales tax on the full face value of certain coupons redeemed by consumers at the time of purchase of the products to which the coupons relate. The coupons are associated with product promotional campaigns in which both the product manufacturers and the Company participate. The coupons at issue here are of a type referred to as "manufacturers' coupons," a name applied when the manufacturer reimburses the store for all, or a portion of, the face value of the redeemed coupons. These coupons are distinguished from "store coupons" for which the store does not receive any reimbursement from the manufacturer. Under the applicable statutes and rules, in the case of manufacturers' coupons, sales tax is charged on the full retail price of the product sold before any reduction is taken for the face value of the coupon redeemed. With store coupons, the store receives no payment for the coupon, so the transaction is treated as a reduction in the sales price, and no sales tax is applied to the face value of the coupon. In this case, the facts indicate that the coupons, on their face, contain both the phrases "by MFR"

and "store coupon," the arrangement between the store and the manufacturer with respect to the coupons is that the store will be reimbursed for coupons redeemed. Thus, the coupons under consideration are "manufacturers' coupons."

The complicating factor here is that, for some of the coupons at issue, while the full face value of each individual coupon is counted in the calculation of the total amount of reimbursement due to the store, there is less than 100% reimbursement on certain coupons when considered in the aggregate. The reason for this is that some of the coupon campaigns, either condition the Company's participation on the payment of a participation fee, or have a reimbursement cap based on expected volume of sales, or require the Company to join in the payment of promotional activities such as advertising. While these vendor-funded or manufacturers' coupons can function to reduce the aggregate reimbursement to the Company, they do not reduce the value of the credit given at the individual coupon level for purposes of calculating the total amount of reimbursement due to the store. Additionally, the aggregate sales in which coupon redemptions occur are unknown at the time of the individual sales transactions. The aggregate sales will not be known until all coupons for a particular promotion are redeemed. And, the redemption of the coupons are not under the control of either the store or the manufacturer.

The law requires that sales tax be imposed to the sales price, "as far as practicable," by the dealer, "at the moment of sale/purchase." The manufacturers and the Company negotiate their coupon arrangements with the intent that the coupons be fully funded, with the exception of an unexpected sales volume, or an instance in which promotional costs are shared. Therefore, at the time of sale, the intention is that the store will receive reimbursement for all or most of the full face value of the coupons, and that the total sales price received by the dealer for the tangible personal property sold at retail will include the face value of the coupon.

FACTS

As ascertained from your letters, and the Appendix of Supporting Documents containing Exhibits 1 through 31, this advisement is based on the following facts.

XXX (the Company) is a XXX corporation which sells XXX goods at approximately XXX stores throughout the United States. The Company operates XXX stores in the State of Florida. The Company is registered as a dealer with the Department, to charge, collect and remit sales tax on each sale in Florida, unless the tangible personal property sold is exempt from sales tax, the customer gives the Company a resale certificate, or the customer has a valid consumer's certificate of exemption.

As part of its normal business practices, the Company enters into agreements with vendors and product manufacturers (collectively referred to herein as "manufacturers") to participate jointly in promotional campaigns of specific products. Such promotions include the distribution of coupons offering discounts off the regular purchase price of an item sold or manufactured by a particular manufacturer, which consumers can redeem only at the Company's stores.

Manufacturer reimbursements to retailers, including Company, for coupons redeemed by consumers are known in the trade as "vendor funding," and the coupons are known as "vendorfunded coupons." The Company participates in such vendor-funded coupon promotions through the distribution of vendor-funded coupons. All of the Company's vendor-funded coupons are imprinted with the terms "Store Coupons" and "by MFR'." The term "store coupon" indicates that the coupon is not a mailorder coupon and may only be redeemed in Company stores. The term "byMFR'" indicates that the coupon redemption is funded in whole or in part by the manufacturer of the discounted item, and that the Company reasonably anticipates that such coupons will be vendor funded.

Consistent with industry practice, vendor funding agreements typically are oral in nature. Prior to the coupon promotion(s) the Company makes estimates of the number of coupons that would be redeemed. The Company and the manufacturer(s) use these estimates to negotiate suitable

vendor-funded promotional agreements.

Although these vendor-funded promotions are generally oral agreements, on occasion, such agreements are reflected in a document referred to as a "Master Credit Allowance Sheet," which is provided by the Company to the manufacturer in advance of the coupon promotion. In any event, pursuant to the parties' agreement, upon the expiration of a coupon promotion the Company generates and sends to the manufacturer a "credit allowance sheet" that is specific to that promotion. The credit allowance sheet describes the total number of coupons redeemed during the promotion and the total amount of money that will be deducted from amounts owed to the manufacturer. Thereafter, and pursuant to the terms of the parties' credit arrangements, the Company remits the balance due for the goods, less the total dollar amount of coupons redeemed (usually taken by the Company in the form of a credit).

The vendor-funded coupon promotional agreements between the Company and the manufacturer(s) fall into four different categories: Categories A through D.

Category A - Category A coupons, as discussed below, are coupons for which the Company receives, from the manufacturer, reimbursement for 100 percent of all coupons redeemed by customers.

Under the Category A coupon arrangement, the Company agrees to issue and distribute a certain number of coupons offering a discount off the purchase price of the manufacturer's products, in consideration for which the manufacturer agrees that it will provide 100 percent of the funding for each coupon redeemed, regardless of the number of coupons redeemed. The Company receives such funding in the form of a credit against monies owed by the Company to the manufacturer for products purchased.

The XXX example, presented in the letter dated October 25, 1994, provides that Company negotiated an agreement with XXX ("Vendor A") pursuant to which the Company agreed to issue and distribute coupons nationwide offering $1.00 off the purchase price of Vendor A's specific themed item, in consideration for

which Vendor A agreed to provide 100 percent of the funding for each coupon redeemed, in the form of a credit against money owed by the Company for goods purchased. The coupon was to be included in an in-store advertising circular for that particular themed item, along with nine other coupons for various of the manufacturer's products.

Prior to the coupon promotion, the Company estimated that 8,000 of the themed item coupons would be redeemed nationwide, for a total dollar value of $8,000.00. In actuality a total of 5,958 of the themed item coupons were redeemed nationwide, for a dollar value of $5,958.00. Upon expiration of the coupon promotion, the Company generated and sent to Vendor A a credit allowance sheet showing that $5,958.00 was to be deducted from amounts owed by the Company to Vendor A, and indicating that the amount deducted was for the themed item coupon promotion. Thereafter, the Company remitted the balance due for goods received, less $5,958.00, the total dollar amount of coupons redeemed.

Category B - Category B coupons, as discussed below, are coupons for which the Company receives, from the manufacturer, reimbursement for 100 percent of all coupons redeemed by customers, subject to a previously agreed "cap."

Under the Category B coupon arrangement, the Company will issue and distribute a certain number of coupons offering a discount off the purchase price of the manufacturer's product, in consideration for which the manufacturer agrees that it will provide 100 percent funding for coupons redeemed, up to a previously agreed upon maximum amount, or cap. In many instances the funding cap is arrived at by the manufacturer and the Company jointly, based on the Company's advance estimates of the number of coupons it anticipates customers will redeem, with the intention that the manufacturer ultimately will fund 100 percent of all coupons redeemed. In the event that the actual number of coupons redeemed exceeds the cap, the Company assumes the difference by funding all redemptions in excess of the cap.

In the letter of October 25, 1994, two examples were presented: XXX ("Vendor B"), and XXX ("Vendor C"). For the

Vendor B vendor-funded coupon agreement, the parties agreed that Company would issue and distribute a coupon nationwide offering a $.50 discount off the purchase price of a specific themed food item, in consideration for which XXX would provide 100 percent of the funding for each coupon redeemed, up to a maximum, or cap, of $10,000.00. Such promotional funding from Vendor B was to be taken by Company in the form of a credit against money owed by the Company for goods purchased. A total of 5,196 coupons were redeemed nationwide, for a dollar value of
$2,598.00. Thereafter, the Company remitted to Vendor B the balance due for goods received, less $2,598.00, the total dollar amount of coupons redeemed.

For the Vendor C vendor-funded agreement, the Company would issue and distribute a coupon nationwide offering a $5.00 discount off the purchase price of a specific themed item, in consideration for which Vendor C agreed to provide 100 percent of the funding for each coupon redeemed, up to a maximum, or cap, of $200,000.00. Such promotional funding from Vendor C was to be taken by Company in the form of a credit against money owed by the Company for goods purchased.

The Company had estimated (and the parties had agreed) that 22,000 of the coupons would be redeemed nationwide, for a dollar value of $110,000.00. In actuality, 37,492 coupons were redeemed nationwide, for a dollar value of $240,685.00. Upon expiration of the coupon promotion, the Company generated and sent to Vendor C a credit allowance sheet showing that
$200,000.00 was to be deducted from amounts owed by the Company to Vendor C, and indicating that the amount deducted was for redemptions of the specified themed item coupon that appeared in the Catalog. Thereafter, Company remitted to Vendor C the balance due it for goods received, less $200,000.00, which was the maximum dollar amount agreed to be funded by the manufacturer. The remaining $40,685.00 in coupon redemptions was funded by the Company.

Category C - Category C coupons, as discussed below, are coupons for which the Company receives reimbursement, from the manufacturer, for 100 percent of all coupons redeemed in excess of a "coupon incentive discount" provided to the manufacturer by

the Company.

Under the Category C coupon arrangement, the Company agrees to issue and distribute a certain number of coupons offering a discount off the purchase price of the manufacturer's product, in consideration for which the manufacturer agrees that it will provide 100 percent funding for coupon redemptions, less a "coupon incentive discount" provided to the manufacturer by the Company. Under such agreements, the manufacturer is obligated to fund 100 percent of coupon redemptions in excess of a predetermined, fixed deductible amount, typically $25,000.00 in coupons redeemed at the Company's stores throughout the United States. Based on the Company's projections of the anticipated response to those promotions, it typically is the Company's expectation that it will receive from the manufacturer funding for at least 51 percent, and as much as 95 percent, of the particular promotion.

The XXX ("Vendor D") vendor-funded coupon agreement, was presented in your letter of October 25, 1994, as an example. In that agreement Company would include seven Vendor D coupons in the Catalog, in consideration for which Vendor D agreed to provided 100 percent of the funding for each coupon redeemed, in the form of a credit against monies owed by the Company for goods purchased, less a $25,000.00 "coupon incentive discount" for each particular coupon promotional campaign.

The first Vendor D coupon included in the Catalog offered
$3.00 off the purchase price of Vendor D's XXX ("Themed Item One"). The Company had estimated (and the parties agreed) that 37,000 of the Themed Item One coupons would be redeemed nationwide, for a dollar value of $110,000.00. In actuality, 57,219 Themed Item One coupons were redeemed nationwide, for a total dollar value of $168,657.00. Thus, after the $25,000.00 coupon incentive discount, Vendor D paid $143,657.00 (i.e., 85%) of the total redemptions for this coupon.

The second coupon offered $5.00 off the purchase price of Vendor D's XXX ("Themed Item Two"). The Company had estimated (and the parties agreed) that 11,000 of the Themed Item Two coupons would be redeemed, for a dollar value of $55,000.00. In

actuality 25,837 Themed Item Two coupons were redeemed nationwide, for a total dollar value of $129,185.00. Thus, after the $25,000.00 coupon incentive discount, Vendor D paid
$104,185.00 (i.e., 80%) of the total redemptions for this coupon.

The third coupon offered $3.00 off the purchase price of Vendor D's XXX ("Themed Item Three"). The Company had estimated (and the parties agreed) that 37,000 of these coupons would be redeemed nationwide, for a dollar value of $111,000.00. In actuality, 10,888 of the Themed Item Three coupons were redeemed nationwide, for a total dollar value of $32,664.00. Thus, after the $25,000.00 coupon incentive discount, Vendor D paid
$7,664.00 (i.e., 23%) of the total redemptions for this coupon.

The fourth coupon offered $5.00 off the purchase price of Vendor D's XXX ("Themed Item Four"). The Company had estimated (and the parties agreed) that 11,000 of the Themed Item Four coupons would be redeemed nationwide, for a dollar value of
$55,000.00. In actuality, 51,766 of the Themed Item Four coupons were redeemed nationwide, for a total dollar value of
$258,830.00. Thus, after the $25,000.00 coupon incentive discount, Vendor D paid $233,830.00 (i.e., 90%) of the total redemptions for this coupon.

The fifth coupon offered $2.00 off the purchase price of Vendor D's XXX ("Themed Item Five"). The Company had estimated (and the parties agreed) that 26,000 of the Themed Item Five coupons would be redeemed nationwide, for a total dollar value of $52,000.00. In actuality, as evidenced by Exhibit 17, 17,799 Themed Item Five coupons were redeemed nationwide, for a total dollar value of $35,598.00. Thus, after the $25,000.00 coupon incentive discount, Vendor D paid $10,598.00 (i.e., 30%) of the total redemptions for this coupon.

The sixth coupon offered $3.00 off the purchase price of Vendor D's XXX ("Themed Item Six"). The Company had estimated (and the parties agreed) that 30,000 coupons would be redeemed nationwide, for a total dollar value of $90,000.00. In actuality, 42,039 Themed Item Six coupons were redeemed nationwide, for a total dollar value of $126,117.00. Thus, after

the $25,000.00 coupon incentive discount, Vendor D paid
$101,117.00 (i.e., 80%) of the total redemptions for this coupon.

Finally, the seventh coupon offered $7.00 off the purchase price of Vendor D's XXX ("Themed Item Seven"). The Company had estimated (and the parties agreed) that 7,000 Themed Item Seven coupons would be redeemed nationwide, for a dollar value of
$49,000.00. In actuality, 3,569 Themed Item Seven coupons were redeemed nationwide, for a total dollar value of $24,983.00. Since that amount did not exceed the $25,000.00 coupon incentive discount, Vendor D did not provide any funding for that coupon.

The redemptions for all seven of the Vendor D coupons combined totalled $776,034.00. The Company funded $174,983.00 of those redemptions by way of coupon incentive discounts, and Vendor D provided a total of $601,051.00 in funding for the seven coupons in the Catalog. Upon expiration of the Catalog promotion, a credit allowance sheet, showing that $601,051.00 was to be deducted from amounts owed by the Company to Vendor D for the coupon reductions, was generated by the Company and sent to Vendor D. Thereafter, the Company remitted to Vendor D the balance due for goods received, less $601,051.00.

Category D - Category D coupons, as described below, are coupons for which the Company receives reimbursement from the manufacturer in the form of co-op monies that are available for the Company's use with respect to a variety of promotional activities, including coupon redemptions, and which the Company reasonably believes at the beginning of a fiscal year will be sufficient to cover 100 percent of all coupon redemptions.

Under the Category D coupon arrangement, the manufacturer agrees to provide the Company with "co-op" monies that are available to be used by the Company for various promotional activities relating to the manufacturer's products, including coupon redemptions, television and print advertising and instore announcements. Such co-op funds are taken by Company in the form of a credit against monies owed by the Company to the manufacturer for products purchased. In arriving at the total amount of co-op funds that will be available for the Company's

use, the Company's Purchasing Department and the manufacturer jointly formulate projections as to anticipated sales volume (the "sales plan"), based on prior experience concerning consumer purchases. However, depending on actual results achieved during the course of a fiscal year, on occasion the amount of co-op funds available may be revised to reflect actual volume.

At the start of each fiscal year, after the sales plan is prepared, and before any promotional activities take place, the Company's Purchasing and Promotions Departments jointly prepare a "spending plan," which is reviewed and approved by the manufacturer. The spending plan allocates the co-op monies made available by the manufacturer to the various planned promotional activities for a manufacturer's products, based on internal estimates as to how much the Company anticipates each activity will require. In each instance, the sales plan allocates sufficient funds to cover 100 percent of the cost of the all promotions, including coupon redemptions for the manufacturer's products. For example, if the Company were to estimate that customers will redeem 100,000 of a $1.00 coupon, the spending plan will reflect a $100,000.00 allocation for coupon redemption out of the co-op funds provided by the manufacturer. In accordance with the agreement between the Company and the manufacturer, during the course of the fiscal year, the Company has discretion to reallocate funds among the different planned promotional activities on an "as needed" basis. Thus, for example, if the actual cost of a particular promotional activity in fact exceeds the Company's projections (because, for example, customers redeemed more coupons than anticipated), the Company may create a revised spending plan and reallocate funding originally budgeted for a different activity and apply it toward the under funded activity. In the event that the Company has reallocated all or some of the co-op funds originally designated to fund a particular promotion (thus leaving a shortfall in the funding available for that promotion) the Company typically negotiates with the manufacturer for additional funding sufficient to cover that shortfall. In the event that the Company cannot obtain additional funding from that manufacturer, and no other funds are available for reallocation from another promotional activity, the Company

assumes the expenses of the over-budget promotional costs itself.

In the letter of October 25, 1994, the XXX ("Vendor E"), and the XXX ("Vendor F") vendor-funded coupon agreements were provided as examples.

First, in the Vendor E vendor-funded coupon agreement, Vendor E agreed to provide the Company with a total of
$1,500,000.00 in co-op funding to pay for all 1993 promotional programs for Vendor E's products, including coupon redemptions, in the form of a credit against money owed by the Company for goods purchased. A master credit allowance sheet reflects Vendor E's agreement to allow the Company to make debits to its account in the amount of $375,000.00, per quarter.

During the course of the fiscal year, the Company spent a total of $1,496,200.00 on Vendor E promotions, including nine different coupon promotions. At the close of each quarter of the fiscal year the Company remitted to Vendor E the balance due for goods received that quarter, less $375,000.00. Thus, by the close of the fiscal year, Vendor E had provided a total of
$1,500,000.00 to the company in co-op funding and the Company actually spent $1,496,200.00 for all Vendor E promotions combined. Accordingly, all of the promotions for Vendor E's products, including coupon promotions, were fully funded by the manufacturer.

The second vendor-funded coupon agreement between the Company and Vendor F, required that Vendor F provide the Company with an anticipated $4,050,000.00 in co-op funding to pay for all 1993 Vendor F XXX promotional programs, including but not limited to coupon redemptions, based on an estimated total volume of $45,000,000.00 (i.e., the Company planned to purchase
$45,000,000.00 worth of Vendor F products during the course of the 1993 fiscal year). Actual co-op funding was to be determined by debiting Vendor F's account for each billing period as follows: 7 percent on lowest volume items purchased during that period, 8 percent on second lowest volume items, and 9 percent on the remainder of the Vendor F product line, based on net shipments minus returns and defective items.

Periodically throughout the fiscal year, and pursuant to the terms of the parties' credit arrangements, the Company remitted to Vendor F the balance due for goods purchased during the period, less amounts owed by Vendor F in co-op funding. During the course of the fiscal year, the Company spent approximately $4,209,700.00 on Vendor F promotions, including fifteen different coupon promotions. The volume of the Vendor F purchases dropped over the course of the fiscal year from an anticipated $45,000,000.00 to approximately $42,500,000.00. As a result of that drop in volume co-op funding was reduced to
$3,596,064.00. Accordingly, approximately $612,936.70 of Vendor F promotions, including but not limited to coupon redemptions, were not vendor funded.

At the expiration of each coupon promotion, the Company generates and sends to the manufacturer a credit allowance sheet that is specific to each promotion, describing the total number of coupons redeemed during the promotion and the total amount of money that will be deducted from monies owed to the manufacturer. Thereafter, the Company remits to the manufacturer the balance due for goods received, less the co-op monies previously agreed to by the manufacturer.

Collection of Tax: Categories A through D

The Company collects sales tax on the full face value of all of the vendor-funded coupons (in Categories A through D), and remits to the Department all sales taxes collected in Florida.

ISSUE

Whether the Company properly collected sales tax on the full face value amount of vendor-funded, or manufacturers' coupons, when used by the Company's customers at the time of purchase to reduce the amount to be paid to the Company by the Company's customer(s).

TAXPAYER'S POSITION

The Company asserts that its current practice of collecting sales tax on the full face value of all of the vendor-funded coupons, and remitting to the Department all sales taxes collected in the State of Florida, is correct.

STATUTORY AND REGULATORY PROVISIONS

The following passages from the Florida Statutes and the Florida Administrative Code are pertinent to the issue raised in your letter.

Section 212.02(17), F.S., defines "sales price" as follows:

"(17) `Sales price' means the total amount paid for tangible personal property, including any services that are a part of the sale, valued in money, whether paid in money or otherwise, and includes any amount for which credit is given to the purchaser by the seller, without any deduction therefrom on account of the cost of the property sold, the cost of materials used, labor or service cost, interest charged, losses, or any other expense whatsoever." (Emphasis added.)

Section 212.05, F.S., provides, in pertinent part, as follows:

"It is hereby declared to be the legislative intent that every person is exercising a taxable privilege who engages in the business of selling tangible personal property at retail in this state, ... "(1) For the exercise of such privilege, a tax is levied on each taxable transaction or incident, which tax is due and payable as follows: "(a)1.a. At the rate of 6 percent of the sales price of each item or article of tangible personal property when sold at retail in this state, computed on each taxable sale for the purpose of remitting the amount of tax due the state, and including each and every retail sale.

"(2) The tax shall be collected by the dealer, as defined herein, and remitted by him to the state at the time and in

the manner as hereinafter provided." (Emphasis added.)

Section 212.06(1)(a), F.S., provides:

"(1)(a) The aforesaid tax at the rate of 6 percent of the retail sales price as of the moment of sale, 6 percent of the cost price as of the moment of purchase, or 6 percent of the cost price as of the moment of commingling with the general mass of property in this state, as the case may be, shall be collectible from all dealers as herein defined on the sale at retail, the use, the consumption, the distribution, and the storage for use or consumption in this state of tangible personal property or services taxable under this part. The full amount of the tax on a credit sale, installment sale, or sale made on any kind of deferred payment plan shall be due at the moment of the transaction in the same manner as on a cash sale." (Emphasis added.)

Section 212.07, F.S., provides, in pertinent part, as follows:

"(2) A dealer shall, as far as practicable, add the amount of the tax imposed under this chapter to the sale price,
... Except as otherwise specifically provided, any dealer who neglects, fails, or refuses to collect the tax herein provided upon any, every, and all retail sales made by him or his agents or employees of tangible personal property or services which are subject to the tax imposed by this chapter shall be liable for and pay the tax himself.

"(4) A dealer engaged in any business taxable under this chapter may not advertise or hold out to the public, in any manner, directly or indirectly, that he will absorb all or any part of the tax, or that he will relieve the purchaser of the payment of all or any part of the tax, or that the tax will not be added to the selling price of the property or services sold or released or, when added, that it or any part thereof will be refunded either directly or indirectly by any method whatsoever...." (Emphasis added.)

The Department has promulgated Rule 12A-1.018, F.A.C., wherein the Department interprets and incorporates into its rule these statutory mandates, as they specifically relate to trade cash discounts. The provisions of Rule 12A-1.018, F.A.C., pertinent to the issue raised herein, provide as follows:

"(1) The tax is imposed upon the total selling price of tangible personal property sold at retail. Where a dealer quotes the purchaser a list price with a deduction therefrom for trade discount, the tax is to be computed on the list price less the trade discount. A trade discount is an expedient for adjusting list prices and is to be deducted in arriving at the true selling price of the property.

"(3) A coupon or refund issued directly by the manufacturer is not to be construed as a reduction in selling price by the dealer. In this case, as illustrated by the following examples, the full selling price of the product is taxable.

"Example A - An automobile is sold to a customer for $5,000 with a $500 factory rebate'. The customer pays the dealer $5,000 for the automobile. The buyer in turn receives $500 refund directly from the manufacturer. The dealer actually received $5,000 for the automobile and this is the taxable base. "Example B - A box of soap powder retails for $1.50, the customer applies amanufacturers' coupon' worth $.50 toward the purchase of the box of powder. The dealer would collect $1.00 and the full tax due on the $1.50 sale from the customer. The manufacturer would redeem the coupon from the dealer for $.50." (Emphasis added.)

DISCUSSION AND DETERMINATION

In direct response to Taxpayer's (i.e., Company's) inquiry, regarding whether sales tax is to be charged, collected and remitted to the State of Florida on the full face value amount of vendor-funded coupons, which are used by the Company's customers to reduce the amount paid to Company by them, the Department responds in the affirmative.

The information provided by the Company, clarifies the intended meaning of the terms "by MFR" and "store coupon," that appear on the face of the coupons. The reference to "store coupon" means that the coupons are redeemable only at the Company's stores, and the reference to the "manufacturer" means that the coupons are funded by the manufacturer. While the facts indicate that the coupons, on their face, contain both the phrases "by MFR" and "store coupon," the arrangement between the store and the manufacturer with respect to the coupons is that the store will be reimbursed for coupons redeemed. Thus, the coupons are clearly vendor-funded coupons, and as such fall squarely within the provisions of Rule 12A-1.018(3), F.A.C., which provides that coupons issued directly by the manufacturer are not to be construed as a reduction in the selling price by the dealer, and hence the full selling price (i.e., the amount charged to and paid by the customer, and the amount paid by the manufacturer) is subject to sales tax.

Category A coupons differ from Category B, C, and D coupons, because the dealer (i.e., the Company) will always receive 100% vendor funding (usually taken by the Company in the form of a credit) for Category A coupons. While Category B, C, and D coupons are also vendor-funded, the aggregate full vendor funding may be offset by an undeterminable sales volume in excess of the cap (Category B), coupon incentive discounts (Category C), or promotional fees in the form of co-op monies (Category D).

A. Tax is measured by the compensation received by the dealer.

Sales tax is not imposed on the value of the tangible personal property being sold, but rather, sales tax is levied on the "sales price." The Florida Supreme Court, in Gaulden v. Kirk, 47 So. 2d 567, (Fla. 1950), speaking to this issue, specifically stated that:

"The amount of tax to be paid is measured by the compensation received for the merchandise sold or services rendered.... Although the tax is determined on the price charged for the merchandise or services, it is the not a

tax upon the personal property or services, but upon the privilege of selling the same, and is measured by the extent to which the privilege is enjoyed." Id. at 574.

Thus, as provided in s. 212.05, F.S., and as stated in Gaulden, it is the dealer who exercises, or enjoys, the taxable privilege of engaging in the business of making retail sales; it is the dealer who has the obligation of charging, collecting and remitting the sales tax; and, it is the compensation received by the dealer selling the tangible personal property, which becomes the taxable base, upon which sales tax must levied.

Since sales tax due is measured on the compensation received for the merchandise, the total consideration received by the dealer (i.e., from the customer and from the manufacturer), is the basis for the tax, not just the amount paid by the customer to acquire the tangible personal property. In this sense, to the dealer of the tangible personal property, the vendor-funded coupons represent another form of currency which the customers use to purchase the product. As will be discussed in more detail below, since sales tax is determined and imposed on each individual transaction, at the moment of purchase, rather than on an aggregation of all similar transactions, the full face value of each coupon is subject to tax.

B. Definition of sales price.

As provided in s. 212.05, F.S., sales tax is imposed on the "sales price" of tangible personal property sold at retail. Under s. 212.02(17), F.S., the definition of "sales price" is the total amount paid for tangible personal property, valued in money, whether paid in money or otherwise (e.g., vendor-funded coupons). In all category coupons (A through D), whenever the Company is provided with a manufacturer's coupon, the Company is receiving something of value. That is, when the Company submits the coupons to the manufacturer, the Company receives a credit from the manufacturer, which it takes against the amount owed to the manufacturer. Thus, the coupons do have a money value to the dealer, the Company, and do represent part of the amount paid for the tangible personal property, or part of the value of

the transaction to the dealer.

As discussed above, it is the compensation received by the dealer which controls the amount of tax due; therefore, it does not matter that the dealer (i.e., Company) is receiving the total amount paid for the tangible personal property from two sources -the Company's customer and the manufacturer. The amount paid by the customer, and the amount paid by the manufacturer combine to produce the "sales price" of the item sold by the Company; and, likewise, combine to produce the compensation received by the dealer (the Company) for the merchandise.

C. Tax is due at the moment of sale or purchase.

Pursuant to s. 212.06(1)(a), F.S., sales tax is imposed at the moment of sale, or the moment of purchase. While it may be the case that the Company's full reimbursement for the coupons in Categories B, C, and D, may be offset by a sales volume in excess of the cap, coupon incentive discounts, or promotional fees in the form of co-op monies, respectively, the manufacturer has agreed to fund, or credit, the Company for all, or at least a predominant part, of the aggregate face value of the coupons that are redeemed by the Company's customers. Thus, it is the parties' reasonable expectation, as determined by the Company's estimates, that, at the time the sale of the product to which the particular coupon is applied, that the vendor-funded coupons will be part of the sales price.

At the time of sale of the merchandise to which the coupons are applied, the Company knows that it will be receiving more for the item than the amount it receives from its customer(s), due to the reimbursement, or credit, it will receive from the manufacturer. As it relates to the coupons in Categories B, C, and D, the exact amount of this overage cannot be determined at the time of sale, or at the time sales tax is imposed. The total amount of reimbursement that will be received by the Company is dependent upon the total number of coupons that are redeemed by consumers, as determined at the end of the particular promotional campaign, reduced by any promotional fees that are shared. The number of total coupons redeemed can

neither be determined with certainty in advance, nor controlled by, either the Company or the manufacturer(s).

Since a dealer is prohibited under s. 212.07, F.S., from absorbing the sales tax, and since all, or a predominant part, of the face value of the coupons is part of the sales price, as discussed above, the Company must collect sales tax, at the time of sale, from its customers on the total sales price of the tangible personal property, including the face value of the vendor-funded coupons. While it is true that the exact amount of the aggregate face value of the coupons that will be redeemed by the Company's customers may be unknown at the time the tax must be imposed, by charging its customers sales tax on the full face value of each individual coupon, the Company ensures that the proper amount of tax is charged, collected and remitted on each transaction; thus, complying with the mandate that the tax be imposed at the moment of sale and added as far as practicable to the sales price. See ss. 212.07(2), and 212.06(1)(a), F.S.

D. Tax must be computed on each taxable transaction, not on a dealer's total taxable sales.

Section 212.05, F.S., provides that sales tax is levied on each transaction or incident. As a result, sales tax cannot be (retroactively) computed on an aggregation of a dealer's total taxable sales of a given product.

In the present case, if at the end of any given promotional campaign the Company were to determine that a certain percentage of coupons were not funded by the vendor, (and, that consequently, the actual consideration ultimately received by the Company was reduced by the amount which was not vendorfunded), an attempt to calculate the sales tax based on an aggregate, lesser amount, computed subsequent to the moment of sale, would contravene the direct statutory mandate to impose sales tax on each individual transaction or incident, at the moment of sale, ss. 212.05 and 212.06, F.S.

Therefore, as it specifically relates to Category B, C, and D coupons, although these coupons may not always be 100% vendorfunded, the Company must tax these coupons at the time the

coupons are redeemed, in conjunction with each individual sale, in the same manner as the coupons in Category A.

CONCLUSION

The Department concludes that, as specifically provided in Rule 12A-1.018, F.A.C., and as directed by Chapter 212, F.S., the Company must charge, collect and remit sales tax to the Department based on the total sales price, or total compensation received by the dealer for the merchandise, which includes the total amount paid, "valued in money or otherwise" (i.e., face value of the vendor-funded coupon), and "is measured by the compensation received for the merchandise sold." The Department hereby confirms that the Company's current collection and remittance of sales tax on the full face value amount of the vendor-funded coupons, as described in the letters to the Department, dated September 16, 1994, and October 25, 1994, is correct.

This response constitutes a Technical Assistance Advisement under s. 213.22, F.S., which is binding on the Department only under the facts and circumstances described in the request for this advice as specified in s. 213.22, F.S. Our response is based on those facts and the specific situation summarized above. You are advised that subsequent statutory or administrative rule changes or judicial interpretations of the statutes or rules upon which this advice is based may subject similar future transactions to a different treatment than expressed in this response.

You are further advised that this response and your request are public records under Chapter 119, F.S., which are subject to disclosure to the public under the conditions of s. 213.22, F.S. Your name, address, and any other details which might lead to identification of the taxpayer must be deleted by the Department before disclosure. In an effort to protect the confidentiality of such information, we request you notify the undersigned in writing within 15 days of any deletions you wish made to the request or the response.

Sincerely,

Nydia Men‚ndez
Tax Law Specialist

NM/
Control No. 18219