Should Illinois sales tax be calculated before or after applying a store reward certificate?

Plain-English summary

A customer used a $20 reward certificate on a $19.97 store purchase but was charged tax on the item price before the reward was applied.

IDOR said the answer depended on whether the retailer was reimbursed. When a retailer received full or partial reimbursement from any source, taxable gross receipts included the customer's payment plus that reimbursement. When no one reimbursed the retailer, the coupon value was a price reduction excluded from gross receipts.

IDOR could not make a definite determination without seeing the reward coupon. Based on the customer's description, the reward value would be nontaxable if the store received no reimbursement whatsoever.

What this means for you

The label "reward," "coupon," or "certificate" does not control. Retailers need records showing whether an issuer, manufacturer, credit-card program, or other source reimburses the discount.

Common questions

Did an unreimbursed store coupon reduce the tax base? Yes.

What if a third party reimbursed part of it? The reimbursement entered taxable gross receipts.

Did IDOR decide this customer's transaction conclusively? No; it had not reviewed the coupon.

Citations and references

• 86 Ill. Adm. Code 130.2125.

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/sales-tax/2016.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/sales-tax/2016/st-16-0030-gil.pdf

Original ruling text

ST 16-0030 GIL 07/21/2016

GROSS RECEIPTS

When a retailer allows a purchaser a discount from the selling price on the basis of a coupon
for which the retailer receives no reimbursement from any source, the amount of such discount
is not included in gross receipts for calculating Retailers’ Occupation Tax liability. See 86 Ill.
Adm. Code 130.2125. (This is a GIL).

July 21, 2016

Dear Xxxxx:
This letter is in response to your letter dated June 27, 2016, in which you requested
information. The Department issues two types of letter rulings. Private Letter Rulings (“PLRs”) are
issued by the Department in response to specific taxpayer inquiries concerning the application of a
tax statute or rule to a particular fact situation. A PLR is binding on the Department, but only as to the
taxpayer who is the subject of the request for ruling and only to the extent the facts recited in the PLR
are correct and complete. Persons seeking PLRs must comply with the procedures for PLRs found in
the Department’s regulations at 2 Ill. Adm. Code 1200.110. The purpose of a General Information
Letter (“GIL”) is to direct taxpayers to Department regulations or other sources of information
regarding the topic about which they have inquired. A GIL is not a statement of Department policy
and is not binding on the Department. See 2 Ill. Adm. Code 1200.120. You may access our website
at www.tax.illinois.gov to review regulations, letter rulings and other types of information relevant to
your inquiry.
The nature of your inquiry and the information you have provided require that we respond with
a GIL. In your letter you have stated and made inquiry as follows:
As regards Sales tax, it is my understanding that when a store accepts a manufacturer’s
coupon as partial payment, sales tax is charged on the full price of the item since the
store will receive a value of the coupon from the manufacturer. The question I have is
in regard to a “reward” given by a store (or perhaps more properly the corporation that
owns the stores, in this case ABC). As a credit cardholder with ABC, I receive rewards
every so often based on the dollar value of my purchases. I recently received a $20
Reward certificate from ABC. Today, I went to a ABC store and purchased an item for
$19.97. I was surprised when they charged me $19.97 plus tax, subtracted the $20,
and charged me a net amount of $1.92. I am certainly not concerned about $1.92.
However, I was of the opinion that since the $20 Reward was only good at a ABC store,
it was basically a store coupon and therefore was to be treated as a price reduction.
Please provide the proper interpretation of the law and/or any rulings. If, in fact, ABC is
charging sales tax improperly on these transactions, it is entirely possibly than [sic] their
customers have been overcharged by hundreds of thousands of dollars over the years.
Thank you for your attention to this matter. In addition to return mail, I may be reached
at EMAIL and at XXX-XXX-XXXX (mobile phone).

DEPARTMENT’S RESPONSE:
Generally, store rewards programs fall within the types of situations covered by the
Department’s regulations at 86 Ill. Adm. Code 130.2125 entitled Discount Coupons, Gift Situations,
Trading Stamps, Automobile Rebates, and Dealer Incentives, which can be found on the
Department’s website. As provided in this regulation, if a retailer allows a purchaser a discount from
the selling price on the basis of a discount coupon for which he will receive full or partial
reimbursement from any source, the retailer incurs Retailers’ Occupation Tax liability on the receipts
received from the purchaser and the amount of any coupon reimbursement. If, however, the retailer
accepts a coupon for which he will receive no reimbursement from any source, then the coupon value
does not become part of the gross receipts subject to tax.
Without viewing the coupon, we cannot make a definite determination as to whether the
amount of your coupon would be subject to tax. However, your letter indicates that the store gave
you a reward coupon that is only redeemable at ABC. The taxability of the transaction depends on
whether the store receives any reimbursement whatsoever from any source for the purchases made
through the use of the reward coupon. If ABC is not reimbursed for the amount of the coupon, the
value of the coupon would not be included in gross receipts and is therefore not subject to Retailers’
Occupation Tax.
I hope this information is helpful. If you require additional information, please visit our website
at www.tax.illinois.gov or contact the Department’s Taxpayer Information Division at (217) 782-3336.

Very truly yours,

Cara Bishop
Associate Counsel

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