Is selling grocery-discount 'coupon certificate' books, redeemable by mail for manufacturer coupons, subject to sales tax?

Plain-English summary

George Palmatier started a home-based business selling "Coupons on Demand" coupon certificate books, either for resale in fundraising situations or to businesses to use as incentives. Each book contains 22 coupon certificates (20 regular plus 2 bonus), each worth $10 toward manufacturer-issued coupons for national brand-name grocery products. To use a certificate, the book owner fills in their name, address, phone number, and the book's registration number, then selects exactly 40 different grocery products by product code, mails the completed certificate to a processing center, and receives the requested manufacturer coupons back in the mail for redemption at grocery stores. Palmatier buys these books from the marketing firm that sponsors the "Coupons on Demand" program and supplies them to distributors like him.

Tax Law § 1105 taxes sales of tangible personal property and certain enumerated services. As with a similar coupon-book opinion issued around the same time, the Department focused on what the purchaser is really buying: the book's primary purpose is the right to obtain manufacturer coupons in order to get discounts at grocery stores, not the physical booklet as a product in its own right. On that basis, the Department concluded that receipts from selling the coupon certificate books -- whether to Palmatier or by Palmatier to his own customers -- aren't subject to New York sales and compensating use tax.

What this means for you

Coupon-book and discount-certificate distributors

If your product's core function is unlocking third-party discounts or coupons (here, mailing in a certificate to receive manufacturer coupons), rather than delivering standalone content, this opinion supports treating the sale as untaxed -- both at the wholesale/distributor level and at final resale.

Businesses using coupon books as sales incentives or fundraising products

Buying or reselling this type of discount-access book for incentive programs or fundraisers doesn't trigger New York sales tax under this opinion's reasoning, regardless of where in the distribution chain the sale happens.

Accountants and tax professionals

This opinion closely parallels TSB-A-96(73)S (the "Healthy Step Directory" discount coupon book, issued the day before), reinforcing that New York's Department applies a consistent "primary purpose is the right to a discount" analysis across different coupon-book business models -- useful precedent to cite together for any client in this space.

Common questions

Q: Does it matter whether Palmatier sells the books himself or a distributor resells them further? A: No -- the opinion addresses receipts "to or by Petitioner" and concludes neither leg of that chain is taxable.

Q: What if a business buys the books to use as employee or customer incentives rather than for a charitable fundraiser? A: The opinion's facts include sale "to businesses to be used as incentives" as one of the described uses, and the untaxed conclusion applies to that use as well.

Q: Can another coupon-book distributor rely on this ruling? A: No. This advisory opinion binds the Department only with respect to George H. Palmatier and the specific "Coupons on Demand" program described.

Citations and references

Statutes and regulations:

• Tax Law § 1105 (tax on tangible personal property and enumerated services)

Prior rulings and cases referenced:

• None cited in this opinion.

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1996.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a96_75s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-96 (75) S
Sales Tax
December 5, 1996

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO.S960909B

On September 9, 1996, a Petition for Advisory Opinion was received from George H. Palmatier, P.O. Box 343, Ghent, New York 12075. The issue raised by Petitioner, George H. Palmatier, is whether sales tax is required to be collected on the sale of coupon certificate books. Petitioner submits the following facts. Petitioner recently started a home based business. It consists of selling coupon certificate books for resale in fundraising situations or to businesses to be used as incentives. The coupon certificate book is entitled "Coupons on Demand." The book contains twenty (20) coupon certificates, plus two bonus coupon certificates. Each coupon certificate has a ten dollar ($10) value and entitles the book owner to obtain manufacturer issued coupons for national brand name grocery products to be redeemed at grocery stores. To redeem this coupon certificate, the book owner is required to complete the certificate by filling in his or her name, address, telephone number and the registration number printed on the back cover of the book. Also, the book owner is required to choose exactly 40 different grocery products from the coupon selection list and list them numerically, according to their product codes. These certificates are then sent in a self-addressed envelope by the book owner to a processing center where the coupons requested are mailed back to the book owner. The coupons can then be redeemed at a store for the national brand name grocery products shown on the coupon certificate. Petitioner purchases these coupon certificate books from a marketing firm that sponsors the "Coupons on Demand" Program and supplies these books to distributors. Section 1105 of the Tax Law imposes tax on receipts from the sale of tangible personal property and certain enumerated services. In this case, Petitioner sells a coupon certificate book that contains advertising in the form of coupon certificates. The book contains twenty-two (22) coupon certificates that must be filled out by the book owner to obtain the national brand grocery coupons of their choice. Since the coupon certificate book has as its primary purpose the right to obtain coupons in order to obtain discounts at grocery stores, the sale of the coupon book to or by Petitioner is not considered a taxable sale.

-2­
TSB-A-96 (75) S
Sales Tax
December 5, 1996

Therefore the receipts from the sales of the coupon certificate book to or by Petitioner are not subject to the sales and compensating use tax.

DATED: December 5, 1996

/s/
JOHN W. BARTLETT
Deputy Director
Technical Services Bureau

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