Was Florida sales tax computed before or after a grocery chain's loyalty-card shelf-price discount?

Plain-English summary

Florida said tax was computed on the cardholder price after the retailer's discount. The chain offered lower advertised shelf prices only to customers whose encoded loyalty cards were scanned.

Vendor allowances did not change that result because they were not tied to particular current-year product sales and the retailer could use them for cost reductions, advertising, displays, or other purposes. The discount therefore resembled a store coupon, not a manufacturer coupon.

If the program changed so a vendor reimbursed the retailer for specific discounted sales, tax would be computed on the gross price before discount.

What this means for you

Trace who funds a discount and whether reimbursement is linked to the individual sale. The card technology and customer-data function did not control the tax base.

Common questions

Q: Was tax charged on the regular shelf price? No, under the stated program.

Q: Did general vendor allowances count as customer-sale reimbursement? No.

Citations and references

• Fla. Stat. §§ 212.02(16), 212.05, and 212.06 — sales price and retail sales tax
• Fla. Admin. Code r. 12A-1.018 — dealer discounts and manufacturer coupons
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 99A-064

Original ruling text

SUMMARY

QUESTION: Does tax apply to purchases made by a customer of
a retail grocery chain using the retailer's Discount Card
Program?

ANSWER - Based on Facts Below: Tax is computed for an item
on the retail price less the Card Discount, similar to a
store coupon.

Nov 30, 1999

Re: TAA 99A-064
XXX ("Taxpayer")
Discount Card Program
Sections 212.02(16), 212.05, 212.06, F.S.
Rule 12A-1.018, F.A.C.

Dear :

This is in response to your letter of September 28, 1999,
in which you requested the issuance of a technical assistance
advisement on behalf of your client, XXX (hereinafter "Taxpayer"
regarding the taxability of its Discount Card Program.

FACTS

The Taxpayer owns and operates numerous supermarkets in
Florida and surrounding states. These supermarkets sell a wide
variety of goods, primarily food and other grocery items.

The Taxpayer purchases tangible personal property for
resale from a wide variety of manufacturers, suppliers, and
distributors (Vendors). A mark up is applied to the cost price
of the property acquired for resale, and the retail sales price
of the property is determined by adding the desired mark up to
the cost price paid for the items. The retail sales price
charged for the items varies only when there is a change in the

cost price of the items or there is a change in the desired mark
up. The Taxpayer may reduce its desired mark up on various
items in order to provide discount or sale prices to its
customers. Furthermore, the Taxpayer may negotiate discounts or
other allowances from the Vendors in order to be able to offer
sale prices while still maintaining the desired mark up. Many
times items are discounted because of the Taxpayer's desire to
meet prices offered by competitors. Generally, however, the
Taxpayer determines the sales price of the items held in its
retail inventory for resale by adding the desired mark up to the
cost price of the items and then advertises the items for sale
at the normal selling price.

The Taxpayer has developed a discount card program which is
intended to promote sales within specific market areas and
promote customer loyalty. Under this program, the Taxpayer
issued encoded electronically-readable cards (Cards) to all of
its existing customers and will issue Cards to any new customers
who request one. Each Card carries unique information which
enables the 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 marketing purposes
by the Taxpayer.

The goals of the Taxpayer's Card program are primarily
accomplished by offering discounts on specific items to
cardholders in the form of lower shelf prices. The discounted
items are identified throughout the store with special shelf
price tags showing the discounted selling price. The discounts
provided are true retailer discounts which the Taxpayer offers
only to a specific group of shoppers.

When a cashier scans the customer's Card, the customer is
identified as being enrolled in the Card program and is provided
discounts on certain purchases. The discounted items vary on a
weekly basis and are identified by special shelf price cards
which indicate that the discounts are given to customers
participating in the Card program. Customers are not required
to provide the Card to the cashier, but only customers whose
Cards are scanned receive these specific discounts.

Generally, the Taxpayer offers sales promotions of this
nature in lieu of other types of sales programs, since this is a
new marketing concept. The discounts are truly shelf price
discounts which are unconditionally offered to Card holders.
This program has replaced the traditional discount program which
the Taxpayer had previously used for all shelf price reductions.
The Taxpayer's business is the same, in that discounts in the
form of shelf price reductions are allowed to customers.
However, the Taxpayer has chosen to increase customer loyalty by
offering discounts in the form of shelf price reductions to
customers holding its Cards, rather than offer general discounts
on various products to all customers. The Taxpayer still
collects the sales tax on the net amount charged to the customer
for taxable items after deducting the advertised discount
described above, and remits to the Department the tax collected.

The Taxpayer receives purchase allowances and trade
discounts from a wide variety of Vendors. These allowances and
discounts may be based on the volume of the Taxpayer's purchases
in the previous year, on negotiations between the Taxpayer and
the Vendor, on prior year market share, or on a combination of
these factors. While the manufacturers know the allocation and
amounts of their trade discounts and purchase allowance budgets,
the Taxpayer and other retailers may not always have knowledge
of the exact amounts which will be allocated to them. Once
known by the retailer, the allowances may be dispersed in the
form of cost price reductions on products, advertising
allowances, display allowances, or in many other ways.

The allowances also may be dispersed either immediately
upon determination or periodically at many times throughout the
year and are dispersed in many different methods.

Once the total amount of benefits which will be provided is
negotiated and/or determined, the Taxpayer is entitled to
receive the benefit of the allowances, either in the form of
cost reductions on specific products, or in the form of
advertising or promotional supports. The Taxpayer has
discretion as to how the benefits should be put to use.

REQUESTED ADVISEMENT

Should the above described Vendor discounts be included in
the sales price of taxable transactions for computing sales tax
due on the Taxpayer's retail sales?

DISCUSSION, ANALYSIS AND CONCLUSIONS OF LAW

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 212.02(16), F.S., defines the term "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....

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.

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

(1) The tax is imposed on 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....

To render a determination on the requested advisement
requires, among other things, an analysis of the correlation
between the Card program and the Taxpayer's receipt and use of
Vendors' allowances.

Based on the facts presented, the Taxpayer obtains its
Vendor allowances based on previous years' sales, and such

allowances are not tied to current year sales of a specific
product. Furthermore, it appears that the Taxpayer has the
discretion as to how to use the Vendor allowances, including but
not limited to cost price reductions on products, advertising
allowances, or display allowances. Consequently, it appears
that the Vendor allowances are not similar to "manufacturer's
coupons," where the retailer is reimbursed by the vendor 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 the 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 Vendor for specific
product sales to customers involving use of a coupon or other
device, the transactions would be akin to the use of
"manufacturer's 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 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,

Richard S. Harrod
Senior Tax Specialist
Technical Assistance & Dispute Resolution

RSH/H
Control No. 39120