Was Florida sales tax computed before or after a supermarket's loyalty-card discount funded partly by supplier allowances?

Subject

MVP Card Program

Plain-English summary

The supermarket computed Florida sales tax on the shelf price after subtracting the loyalty-card discount. The card reduction was a dealer discount similar to a store coupon, not a manufacturer coupon reimbursed for a specific customer purchase.

Suppliers paid promotional and purchase allowances using prior-year purchases, negotiated amounts, market share, and other factors. The supermarket could use those funds for card discounts, advertising, other promotions, cost-of-goods adjustments, or simply increased margin. Presenting the card on a particular sale did not change the amount any supplier paid.

Because there was no direct link between a supplier payment and an individual discounted purchase, the customer's reduced amount was the retailer's sales price at the moment of sale. The Department warned that if the program changed so a supplier reimbursed the supermarket for specific discounted product sales, the arrangement would resemble a manufacturer coupon and tax would apply before the discount.

What this means for you

The funding source alone does not decide the coupon tax base. Retailers should document whether supplier money is discretionary promotional support or a reimbursement earned from identified customer redemptions of a specific product offer.

Common questions

Q: Did the supermarket's receipt of supplier allowances make every card discount a manufacturer coupon? No. The allowances were not tied to current individual sales and the supermarket controlled their use.

Q: What amount was taxable under the described program? The retail price after the card discount.

Q: When would tax apply to the price before discount? If supplier reimbursement became directly connected to specific product sales involving the customer's coupon or similar device.

Citations and references

• Fla. Stat. §§ 212.02(16), 212.05(1)(a), 212.06(1)(a) — sales price and tax measured at retail sale
• Fla. Admin. Code r. 12A-1.018(1), (3)-(4) — manufacturer coupons versus dealer discounts
• Gaulden v. Kirk, 47 So. 2d 567 (Fla. 1950)
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 98A-057

Original ruling text

SUMMARY

The Taxpayer owns and operates numerous supermarkets in
Florida. The Taxpayer developed a "Card" program which
entitled customers using the Taxpayer's "Card" program to a
discount on selected products. The Taxpayer received
supplier allowances on selected products, but such
allowances were not tied to current year sales of a
specific product. This TAA determined that the Taxpayer
should compute the tax for an item on the retail price less
the "Card" discount, similar to a store coupon.

Jul 16, 1998

Re: Technical Assistance Advisement 98A-057
Sales and Use Tax - MVP Card Program
Petitioner: XXX (herein "Taxpayer")
FEI: XX
Sections: 212.02(16), 212.05, 212.06, F.S.
Rule:

12A-1.018, F.A.C.

Dear :

This letter is a response to your petition dated May 22,
1998, for the Department's issuance of a Technical Assistance
Advisement ("TAA") concerning the above referenced party and
matter. Your petition has been carefully examined and the
Department finds it to be in compliance with the requisite
criteria set forth in Chapter 12-11, F.A.C. This response to
your request constitutes a TAA and is issued to you under the
authority of s. 213.22, F.S.

DISCUSSION OF FACTS

In your letter, you presented the following for review and
advisement thereon:

Taxpayer owns and operates numerous supermarkets in Florida

and other southeastern and mid-Atlantic states. Through
its supermarkets, Taxpayer sells at retail a wide variety
of food and other grocery items, as well as other products.

Taxpayer negotiates with, and receives promotional and
purchase allowances from, product distributors, promoters,
manufacturers and other suppliers (collectively
"Suppliers"). Some Suppliers award allowances to Taxpayer
using an allocation method typically based on Taxpayer's
purchases from Suppliers during the previous year (usually
on a per case accrual rate). Other Suppliers award
specific allowance amounts to Taxpayer, the amounts of
which are determined through negotiations between Taxpayer
and Suppliers and by such other factors as the market share
of the applicable product(s).

The allowances earned by the Taxpayer from a Supplier can
be used by the Taxpayer to reduce the selling price of that
Supplier's products and/or to advertise or otherwise
promote the Supplier's products. In some instances, the
Taxpayer may retain the amount of the allowances as a price
adjustment for its cost of goods sold. All allowances are
paid by the Suppliers directly to the Taxpayer. All
allowances are negotiated and/or determined during the
product procurement process. While the allowances are
earned in the manner described above, Suppliers and
Taxpayer typically agree to have the Suppliers release the
funds to Taxpayer at the time of promotional activity.

Taxpayer develops marketing strategies using the
aforementioned allowances to increase certain product
sales, to promote sales within specific market areas, and
to promote customer loyalty. One marketing strategy is
retailer price reductions. Retailer price reductions can
be targeted to all customers or to a select group of
customers. Retailer price reductions directed to all
customers are delivered through reduced shelf prices of
items sold, while retailer price reductions directed to a
select group of customers are now delivered by Taxpayer
primarily through its "Card" program.

The "Card" program was developed and implemented by
Taxpayer to direct additional shelf price reductions to a
select group of customers and to promote customer loyalty.
Under this program, Taxpayer issues encoded electronicallyreadable cards ("Cards") to all of its existing customers
and continues to offer Cards to any customer who requests
one. Each Card, which is similar in appearance and
function to a bank automatic teller card, carries unique
information which enables Taxpayer to identify the customer
to whom the Card was issued and to collect data related to
the customer's buying habits. The information gathered is
used for various marketing purposes.

When a customer purchases goods at one of Taxpayer's
supermarkets, he or she may present the Card to the cashier
for purposes of identifying his or her enrollment in
Taxpayer's Card Program. Taxpayer discounts the price of
selected products to customers presenting Cards in an
effort to promote customer loyalty.

While Supplier allowances provide funds that Taxpayer uses
to pass additional cost savings to certain of its customers
through the Card program, the use of the Card by Taxpayer's
customers does not affect the amount of allowances any
Supplier pays the Taxpayer. As described above, Taxpayer
has wide discretion in determining the manner in which the
funds it receives from Suppliers are utilized, including
whether to use such funds in promotional programs, such as
the "Card" program, designed to increase gross sales, or,
in some instances, simply keeping the allowances for itself
and applying those funds towards its "bottom line" and,
thereby, increasing its margins for goods sold.

Requested Advisement

Are the above described price reductions through the
Taxpayer's "Card" program similar to the use of manufacturer
coupons where tax is due on the full sales price of the item
before any reduction is taken for the coupon or are they similar
to store coupons in which tax is due on the price of the item
after discount has been taken?

Discussion of Law

Section 212.02(16), F.S., defines "sales price" as follows:

(16) "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 supplied.)

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

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 the dealer to the state at the time
and in the manner as hereinafter provided.
...

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 chapter. 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
supplied.)

Rule 12A-1.018, F.A.C., provides in part:

(1) The tax is imposed upon the total selling price of
tangible personal property sold at retail....
(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,... the full selling price of the
product is taxable.
(4) A dealer's discount is a reduction in selling price if
taken at the moment of sale or purchase of a product....

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), rehearing denied July 31, 1950,
speaking to this issue, specifically stated that:

... [T]he amount of tax to be paid is measured by the
compensation received for the merchandise sold or services
rendered.... Although the tax is determined upon the price
charged for the merchandise or services, it is 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 that becomes
the taxable base, upon which sales tax must be levied.

ANALYSIS

Resolution of the stated issue requires, among other
things, an analysis of the correlation between the Card program,
and the Taxpayer's receipt and use of Suppliers allowances.

The facts, as represented to the Department, indicate that
the Taxpayer obtains its Supplier allowance based on various
factors, such as an allocation formula based on previous years
sales, or simply due to arms length negotiation, which may
include both objective and subjective factors. In any event,
the amount and the receipt of a Supplier allowance is not tied
to current year sales of a specific product. We deem any
discounts granted to a customer at retail by virtue of the use
of the "Card" as a current reduction in sales price, by
Taxpayer, taken at the moment of sale, and not "...a coupon or
refund issued directly by the manufacturer...."

Because Taxpayer has the discretion as to how to use the
Supplier allowances, including but not limited to applying them
to product discounts through its "Card" program, paying for
related advertising or keeping the allowances to increase its
"bottom line," it appears that the Supplier allowances are not
similar to "manufacturers' coupons," where the vendor is
reimbursed by the supplier for specific product sales based upon
the number of coupons presented. Whereas in the typical
"manufacturer's coupon" situation, the amount paid to a retailer
is directly related to a specific purchase of the manufacturer's
product by customers who present coupons, here, there appears to
be no connection between the allowances received by Taxpayer and
any individual sale of that manufacturer's product to a
customer.

Therefore, specifically as to the "Card" program described
above, Taxpayer should compute the tax for an item on the retail
price less the "Card" discount, similar to a store coupon.

However, if there are changes to the "Card" program such that it
involves reimbursement to Taxpayer by a supplier for specific
product sales to customers involving use of a coupon or other
device, the transactions would be akin to the use of
"manufacturers' coupons" and tax should then be computed on the
gross selling price before discount.

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
predicated upon 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 from that
which is 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 that 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 this response.

Sincerely,

Leigh L. Ceci
Tax Law Specialist

Enclosure
Control #34317