Is Kansas sales tax charged on a discount when the manufacturer offering it is not reimbursed?

Plain-English summary

The question was how Kansas sales tax applies to a discount. The Department set out the framework:

• K.S.A. 79-3603(a) imposes sales tax on the gross receipts received from the sale of tangible personal property at retail.
• K.S.A. 79-3602(h) defines "gross receipts" as the total selling price or amount received, in money, credits, property, or other consideration valued in money.
• K.S.A. 79-3602(g) defines "selling price" as the total cost to the consumer exclusive of discounts.

Applying that, the Department ruled that because the discount here was offered as an inducement or reward for increased sales, and because the manufacturer will not be reimbursed for the discount, sales tax does not apply to the discount amount. In other words, the discount reduces the taxable selling price.

What this means for you

If you give a genuine discount that lowers what the customer actually pays — and no one reimburses you for it — Kansas sales tax is calculated on the reduced price, not the pre-discount price.

• Unreimbursed discounts come out of the tax base. The taxable "selling price" excludes discounts, so tax is charged on the net amount the consumer pays.
• The key facts here were: the discount was an incentive/reward for increased sales, and the manufacturer would not be reimbursed for it.
• Watch for reimbursed discounts. The ruling's reasoning turns on the manufacturer not being reimbursed. Arrangements where a third party reimburses the discount (so the seller still effectively receives the full amount) can be treated differently, because the seller's gross receipts include that other consideration.

Common questions

Do I charge Kansas sales tax on the full price or the discounted price?
On the discounted price, when the discount is a genuine reduction the consumer receives and is not reimbursed — the taxable selling price excludes discounts.

Why did the manufacturer's non-reimbursement matter?
Because "gross receipts" includes consideration received from any source. Since the manufacturer would not be reimbursed for the discount, no extra consideration replaced it, so the discount reduced the taxable amount.

What is the "selling price" for Kansas sales tax?
Under K.S.A. 79-3602(g), it is the total cost to the consumer exclusive of discounts.

Would a coupon or rebate reimbursed by a third party be treated the same?
Not necessarily. If a third party reimburses the seller for the discount, that reimbursement can be part of the seller's gross receipts and thus taxable — get a determination for your specific arrangement.

Citations and references

• K.S.A. 79-3603(a) — imposes sales tax on the gross receipts from the retail sale of tangible personal property.
• K.S.A. 79-3602(h) — defines "gross receipts."
• K.S.A. 79-3602(g) — defines "selling price" as the total cost to the consumer exclusive of discounts.

Source

• Original ruling (DOCX): https://www.ksrevenue.gov/pildocs/rulings/P-1998-25.docx
• Kansas Policy Information Library: https://www.ksrevenue.gov/prpil.html

Original ruling text

Private Letter Ruling

Body:

Office of Policy & Research

February 27, 1998

TTTTTTTTTTT
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Dear Mr. TTTTTTT:

We wish to acknowledge receipts of your letter dated December 15, 1997, regarding the application of Kansas Retailers’ Sales tax.

K.S.A. 79-3603(a) imposes a sales tax upon: “The gross receipts received from the sale of tangible personal property at retail within this state. . .”

K.S.A. 79-3602(h) defines “gross receipts” as: “the total selling price or the amount received as defined in this act, in money, credits, property or other consideration valued in money. . .”

Pursuant to K.S.A. 79-3602(g), the “selling price” means the total cost to the consumer exclusive of discounts and credited.

In closing, since the discount was offered as an inducement/reward for increased sales and based upon the fact that the manufacturer will not be reimbursed for said discount, the sales tax would not be applicable to the respective discount amount.

If I may be of further assistance, please contact me at your earliest convenience at (785) 296-7776.

Sincerely yours,

Thomas P. Browne, Jr.
Tax Specialist

TPB

Date Composed: 03/04/1998 Date Modified: 10/10/2001

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