How did Texas tax trading stamps, stamp dispensers, folders and catalogs, and merchandise or cash given when customers redeemed stamps?

Plain-English summary

The Texas Comptroller treated the trading stamps themselves as nontaxable intangibles. The program operator still had to pay tax to the stamp printer.

Stamp dispensers could be bought and sold through the program chain with resale certificates until they reached the retail merchant, which was the user and had to pay tax. Texas tax did not apply when dispensers were delivered to retailers outside Texas.

The treatment of catalogs and stamp folders depended on how they moved. If sold to retailers, they were taxable to the retailer like dispensers. If given away, the program operator paid tax to the printer.

When stamps were redeemed, sales tax was collected on the value of taxable merchandise transferred to the customer. Redemption for nontaxable merchandise or cash had no further sales-tax consequence under the letter.

What this means for you

The reward instrument, program equipment, printed materials, and redemption item each had separate tax treatment. Nontaxable stamps did not make dispensers or taxable redemption merchandise exempt.

Common questions

Were trading stamps taxable when sold? No.

Who paid tax on the dispensers? The retailer that ultimately used them, unless delivered outside Texas.

How were stamp folders and catalogs treated? Taxable to retailers if sold; taxable to the program operator at printing if given away.

Was taxable merchandise taxed at redemption? Yes, on its value.

What about cash or nontaxable merchandise? No further tax consequence under the letter.

Citations and references

• The letter cited no numbered statute or Comptroller rule.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8701L0787F12

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, 78774

BOB BULLOCK
Comptroller January 16, 1987

Dear ***:

Thank you for your recent letter which is restated with response below.

Situation:
We have a client who is about to begin the sale of a marketing program
which will entail the use of trading stamps. The following steps repre-
sent the flow of these stamps:

Step 1
My client has the stamps printed and pays the printer. He also purchases
stamp dispensers.

Step 2
My client sells the stamps and dispensers to the independent sales
people.

Step 3
The independent sales people sell the stamps and dispensers to retail
merchants.

Step 4
The retail merchants dispense one stamp for every $1.00 of sales.

Step 5
The customer returns the filled stamp folders to the merchant for a
stated
value toward the purchase of merchandise or for cash.

Step 6
The merchant returns the filled stamp folders to my client for redemption
and
receives back approximately 90% of the purchase price of the stamps.

Step 7
The redeemed stamp folders are destroyed.

My question is: Are the stamps and/or dispensers subject to sales tax and
if
they are, at what point?

Further, if sales are made out of the state to an independent sales
person,
what are the sales tax rules concerning those sales.

Response:

The stamps are considered to be an intangible and not taxable when sold.
However, your client should pay tax to the printer. Because he is
reselling
the dispensers he may give the supplier of dispensers a resale
certificate in
lieu of tax. He may also accept a resale certificate in lieu of tax when
reselling to the sales people.

The retailer is the user of the dispensers and he is required to pay tax
on
them at the time of purchase. However, if the dispensers are delivered to
a
retailer at an out-of-state location, Texas tax is not due. No mention
is made
of the catalogues and stamp folders in your letter so it is not known who
produces them or if they are sold or given to the retailers with the
stamps.
If they are sold they are taxable to the retailer and would be handled
like
the dispensers. If they are given away then tax must be paid to the
printer
at the time of purchase.

Sales tax is collected on the value of taxable merchandise transferred to
the
customer when the stamps are redeemed. If the customer receives
nontaxable
merchandise or cash there are no further tax consequences.

This opinion is based upon the facts you presented. If there are
additional
or different facts, this opinion may change.

Please feel free to contact me if you have additional questions. You may
write me, call toll free 1-800-252-5555 from anywhere in Texas or phone
512/463-4600.

Sincerely,
Al Van Allen
Tax Policy Section
Tax Administration Division