In a paperless electronic-coupon system, how must a grocer disclose a manufacturer's coupon so tax is figured on the reduced price?

Plain-English summary

Price Chopper runs an electronic coupon system, "Advantage," that automatically deducts a manufacturer's coupon at the register with no paper coupon. It asked the proper way to notify customers of a manufacturer's coupon so that sales tax is computed correctly in a paperless system.

New York's coupon rules (Reg. § 526.5(c)) require that when a store's coupon involves a manufacturer's reimbursement, the reimbursement be disclosed to the customer — on the coupon or in the advertisement. If it isn't disclosed (§ 526.5(c)(4)), the store collects tax from the customer on only the reduced price but must pay tax on the entire receipt (price plus reimbursement) out of its own funds.

Because Price Chopper's system has no paper coupon, the disclosure has to be in its advertising. The Department held:

• Price Chopper must show the item was a manufacturer's coupon item by marking "MFG" or "M" on manufacturer's coupons printed in its in-store circulars and newspaper inserts; and
• An "MFG"/"M" code on the shelf label alone would not meet the disclosure requirements of § 526.5(c)(4).

Note: on reconsideration, the Department modified this opinion in TSB-A-92(64.1)S, holding that a larger, distinctive "Advantage Shelf Tag" (substantially as described there) does meet the § 526.5(c)(4) disclosure requirement.

What this means for you

Grocers and retailers using paperless coupons

In a scan-down or card-based coupon program with no paper coupon, you still must disclose the manufacturer's reimbursement to the customer, or you'll owe sales tax on the reimbursed portion yourself. This opinion says the disclosure works when you flag the manufacturer coupon in your circulars and newspaper inserts, but that a small "MFG"/"M" code on an ordinary shelf label is not enough on its own.

Read this together with TSB-A-92(64.1)S

The follow-up modified opinion, TSB-A-92(64.1)S, accepted a larger, differently-colored shelf tag (the "Advantage Shelf Tag") as adequate disclosure. So a sufficiently distinctive shelf tag can satisfy disclosure even though a routine shelf label with only a code cannot.

Accountants and tax professionals

Disclosure under Reg. § 526.5(c)(4) determines who bears tax on the manufacturer reimbursement, not the size of the tax base. Adequate media here: in-store circulars and newspaper inserts. A plain shelf-label code is insufficient — but see the modification in TSB-A-92(64.1)S accepting a distinctive shelf tag.

Common questions

Q: How does a grocer disclose a manufacturer coupon when there's no paper coupon?
A: By flagging the item as a manufacturer's coupon item in its advertising — here, marking "MFG"/"M" on manufacturer coupons in in-store circulars and newspaper inserts.

Q: Is a small "MFG"/"M" code on the shelf label enough?
A: Not under this opinion. A code on the shelf label alone does not meet the § 526.5(c)(4) disclosure requirement. (The later TSB-A-92(64.1)S accepted a larger, distinctive shelf tag.)

Q: What happens if the reimbursement isn't disclosed?
A: The store collects tax from the customer on only the reduced price but must pay tax on the entire receipt — price plus reimbursement — itself.

Q: Can another taxpayer rely on this opinion?
A: No. An advisory opinion binds the Department only as to the petitioner and the facts described; another taxpayer with different facts cannot rely on it.

Citations and references

Statutes and authorities:

• Sales and Use Tax Regulations § 526.5(c) (coupons)
• Sales and Use Tax Regulations § 526.5(c)(1) (manufacturer coupon; tax due on the full receipt)
• Sales and Use Tax Regulations § 526.5(c)(4) (undisclosed manufacturer reimbursement; vendor must pay tax on the full receipt)
• Modified by TSB-A-92(64.1)S

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1992.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a92_64s.pdf

Original ruling text

New York State Department of Taxation and Finance
TSB-A-92 (64) S
Sales Tax
August 24, 1992

Taxpayer Services Division
Technical Services Bureau

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S920520A

On May 20, 1992 a Petition for Advisory Opinion was received from Price Chopper
Operating Co., Inc., P.O. Box 1074, Schenectady, New York 12301.
The issue raised by Petitioner, Price Chopper Operating Co., Inc., is what is the proper
method by which to notify a customer of a manufacturer's coupon which does not reduce the amount
of the purchase price subject to sales tax when there is no paper coupon available.
Petitioner has instituted an electronic coupon system called "Advantage" which allows for
the automatic deduction at the point of sale of manufacturer's coupons which reduce the amount of
the purchase price of the product without the physical presentation of a paper coupon. The coupon
item is rung up on the register at full retail and at the bottom of its tape Petitioner's scanning system
automatically deducts the amount of the coupon. Petitioner's register tape provides sufficient detail
to identify the product to which the coupon applies.
Where there is no paper coupon available, Petitioner proposes to indicate by a code such as
"MFG" or "M" on the shelf label that the product is a manufacturer's coupon item. The shelf label
would be changed as the product is offered for sale with coupon or without coupon. Petitioner
presently prints "MFG" or "M" on manufacturer's coupons printed in its in-store circulars and
newspaper inserts even though these letters are printed only to inform the customer of the available
"Advantage" products for the week.
Section 526.5(c) of the sales and use tax regulations provides as follows:
(c) Coupons. (1) Where a manufacturer issues a coupon entitling a purchaser to a
credit on the item purchased, the tax is due on the full amount of the receipt. The
receipt is composed of the amount paid and the amount of the coupon credit. The
coupon credit reflects a payment or reimbursement by another party to the vendor.
Example 1:

A manufacturer issues coupons entitling the holder to
credit allowances of 12¢ on the purchase of its
products from a retailer. The tax is computed as
follows by the retailer:
Regular price
Tax at 7% rate
Credit for mfr. coupon
Amount due from purchaser

TP-9 (9/88)

63¢
5¢
68¢
12¢
56¢

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TSB-A-92 (64) S
Sales Tax
August 24, 1992
(2) Where a store issues a coupon, entitling a purchaser to a credit on the item
purchased, for which it is reimbursed by a manufacturer or distributor, the tax is due
on the full amount of the receipt. The receipt is composed of the amount paid and the
amount of the coupon credit. The coupon must indicate, by "mfr" or some other code,
that reimbursement is made. The reimbursement from the manufacturer or distributor
to the store may be made in any form, such as cash or a credit against purchases or
in additional merchandise.
Example 2:

A store issues a coupon, labeled "mfr" entitling the
holder to a credit allowance of 12¢ on the purchase of
its products from a retailer. The purchaser is billed as
follows by the retailer:
Regular price
Tax at 7% rate
Credit for mfr. coupon
Amount due from purchaser

63¢
5¢
68¢
12¢
56¢

(3) Where a store issues a coupon entitling a purchaser to a discounted price
on the item purchased, and receives no reimbursement, the tax is due from the
purchaser on only the discounted price, which is the actual receipt.
Example 3:

A store issues coupons entitling the holder to credit
allowance of 12 cents on the purchase of its products
from a retailer. The purchaser is billed as follows by
the retailer:
Regular price
Store coupon
Tax at 7 percent rate
Amount due from purchaser

63¢
12¢
51¢
4¢
55¢

(4) Where a store issues a coupon involving manufacturer's reimbursement,
but does not disclose that fact to the purchaser on the coupon or in the advertisement,
the vendor will collect from the purchaser only the tax due on the reduced price, but
will be required to pay the tax on the entire receipt--the amount of the price and the
reimbursement received from the manufacturer or distributor.
Under Section 526.5(c)(4) of the Sales and Use Tax Regulations in order for the use of the
manufacturer's coupon to be entitled to the method of tax computation set forth in Section
526.5(c)(1) of the Regulations, the manufacturer's reimbursement must be disclosed to the purchaser
on the coupon or in the advertisement for the product. In the instant case, since there are no physical
coupons, this information must be contained in Petitioner's advertisements. Petitioner must show that

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TSB-A-92 (64) S
Sales Tax
August 24, 1992

the item was the subject of a manufacturer's coupon by indicating "MFG" or "M" on manufacturer's
coupons printed in-store circulars and newspaper inserts. The indication by a code such as "MFG"
or "M" on the shelf label alone would not meet the disclosure requirements of Section 526.5(c)(4)
of the Regulations.

DATED: August 24, 1992

s/PAUL B. COBURN
Deputy Director
Taxpayer Services Division

NOTE: The opinions expressed in Advisory Opinions
are limited to the facts set forth therein.