How does Texas tax coupons and deli food sales, and what transition relief applied to grocery retailers?

Plain-English summary

This letter, signed by Deputy Comptroller Dan Pearson, restates the Comptroller's policy on two grocery-store issues that arose after a 1987 change in the law: food sold from delis and sales involving coupons. It is written to a retailer, with copies to the Tax Policy Committee and senior Comptroller officials.

Deli sales (transition relief). From the legislation's effective date of October 1, 1987 through the Agency's April 7, 1988 letter (which announced it would follow the old rule on food for immediate consumption), the Comptroller will not assess additional tax, penalty, or interest on deli food sales that were improperly taxed during that window — because the industry and the Agency were both still working out how to apply the tax. However, any tax that was collected must be remitted to the State or refunded to the customer; penalty and interest will be imposed on tax collected but not refunded or remitted.

Coupons (now a price discount). The Comptroller's policy now treats all coupons as a price discount. It will not hold any retailer at fault for failing to comply until after October 1, 1988 — a grace period, because retailers needed time to reprogram the computer scanning equipment to match the rule change. Again, any tax collected and not refunded to the customer must be remitted to the State, with penalty and interest if it is not.

Note: the file is captioned "manufacturer's vs. store's" coupons, but the operative policy the letter states is that all coupons are treated the same way — as a price discount.

What this means for you

Grocers and retailers handling coupons

Treat coupons as a reduction in the sales price — tax the discounted amount. If your point-of-sale system wasn't yet reprogrammed, the Comptroller gave a grace period through October 1, 1988 before holding retailers at fault.

Deli food taxed during the 1987–1988 transition

If you over-collected or improperly taxed deli food between October 1, 1987 and April 7, 1988, the Agency won't come after additional tax, penalty, or interest for that window — but you cannot keep tax you collected. It must go back to the customer or to the State, or penalty and interest attach.

The core rule: collected tax is not yours to keep

Across both issues, the Comptroller is emphatic that any tax actually collected must be refunded to the customer or remitted to the State. Transition relief forgives the mistake, not the retention of collected tax.

Common questions

Q: How does Texas treat coupons under this policy?
A: All coupons — manufacturer's or store's — are treated as a price discount that reduces the taxable sales price.

Q: Was there a grace period to comply on coupons?
A: Yes. The Comptroller said it would not hold retailers at fault for non-compliance until after October 1, 1988, to allow time to reprogram scanning equipment.

Q: What about deli food that was improperly taxed in 1987–1988?
A: For the period from October 1, 1987 through the April 7, 1988 letter, the Agency will not assess additional tax, penalty, or interest — but any tax collected must still be refunded to the customer or remitted to the State.

Q: Can I keep sales tax I collected but didn't owe?
A: No. Collected tax must be refunded to the customer or remitted to the State; penalty and interest apply to collected tax that is neither refunded nor remitted.

Q: Can I rely on this 1988 letter today?
A: Treat it as guidance only. The dated transition relief and grace period were specific to 1987–1988; on the STAR system this letter binds the Comptroller only as to the taxpayer it was issued to and may no longer reflect current policy.

Citations and references

Rules and statutes: The letter refers to the October 1, 1987 effective date of the legislation that changed the taxation of food for immediate consumption, and to the Agency's own April 7, 1988 policy letter, but does not cite a specific Tax Code section or Comptroller rule by number.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8808L0887A05

Original ruling text

August 1, 1988

Dear **:

Per our phone conversation last Thursday, please accept this letter as
restatement of our policy on food sold from delis in grocery stores and sales
involving coupons.

Our policy on deli sales is as follows. From the effective date of the
legislation, October 1, 1987, through our letter of April 7, 1988, notifying
you of our decision to follow our old rule on food for immediate consumption,
this Agency will not assess additional tax, penalty, or interest on food sales
improperly taxed during this period. This policy is necessary due to the fact
that during this time the industry and this Agency were both grappling for a
method of applying tax on these sales.

Any tax which was collected, however, must be remitted to the State or refunded
to the taxpayer. This Agency will impose penalty and interest on all taxes
collected but not refunded to the customer or remitted to the State.

Concerning our policy on coupon sales, which now treats all coupons as a price
discount, this Agency will not hold at fault any retailer who cannot comply
with this policy change until after October 1, 1988. This grace period is
necessary due to the confusion in the industry and the time required for
computer scanning equipment used by the industry to be reprogrammed in
accordance with our rule change.

Once again, this Agency will expect any taxes collected and not refunded to the
customer to be remitted to the State. Penalty and interest will be applied if
this does not occur.

If you have any further questions on these matters, please feel free to contact
me.

Sincerely,

Dan Pearson
Deputy Comptroller

cc: Johnnie B. Rogers, Sr., Tax Policy Committee
Claudia Stravato, Deputy Comptroller for Tax Enforcement
Harold Lee, Associate Deputy for Audit
Willis Whatley, Deputy Comptroller for Legal Affairs
Chuck Bailey, Administrative Law Judge
Bob Frederick, Director, Legal Services
Charlie Hill, Director, Tax Policy