When a grocery store's gas-pump trading stamp promotion is redeemed for a mix of taxable and nontaxable food items, how is sales tax computed?

Plain-English summary

A grocery store runs a promotion: customers earn trading stamps based on the number of gallons of gasoline they buy at pumps located in the store's parking lot. Once a customer fills a card with the required stamps, the card can be redeemed for a set list of items — a mix of taxable items (soda) and nontaxable food items (bread, eggs, tortillas, chips). The card itself tells the customer they're responsible for any sales tax.

The Comptroller explained that redeeming trading stamps for merchandise is treated as a retail sale. That means the retailer must collect and remit sales tax on the taxable items redeemed, based on whichever is larger: the redemptive value of the stamps surrendered, or the reasonable retail price of the taxable merchandise (citing Rule 3.301(a)(2)). Based on the example the taxpayer submitted, tax was due on the retail value of the sodas, but not on the bread, eggs, tortillas, or chips, since those are nontaxable food items.

What this means for you

Retailers running stamp, points, or card-based redemption promotions

Treat merchandise redemptions as retail sales for sales tax purposes. If your redemption list mixes taxable items (like soft drinks) with nontaxable grocery food items, you only owe — and should only collect — tax on the taxable items redeemed.

Computing the tax base on redeemed taxable merchandise

Tax is computed on whichever is larger: the redemptive value of the stamps/points surrendered for that item, or the item's reasonable retail price. Don't assume you can use a nominal or discounted "stamp value" if it's lower than the item's normal retail price.

Gas station and grocery combo promotions

Basing stamp accrual on gasoline gallons purchased doesn't change the analysis — what matters for tax purposes is the tax status of the item actually redeemed (taxable vs. nontaxable food), not how the stamps were earned.

Common questions

Q: Is redeeming trading stamps for merchandise treated as a taxable sale?
A: Yes. The Comptroller treats it as a retail sale, so sales tax applies to the taxable items redeemed.

Q: How much tax is due when merchandise is redeemed for stamps?
A: Tax is due on the taxable items only, based on whichever is larger — the redemptive value of the stamps surrendered or the reasonable retail price of the taxable merchandise (Rule 3.301(a)(2)).

Q: Is tax due on nontaxable food items redeemed through the same promotion?
A: No. In the letter, bread, eggs, tortillas, and chips were not taxed, only the soda was, because those items are nontaxable food while soda is a taxable item.

Q: Can I rely on this letter for my own promotion?
A: No. The letter states its opinion is based on the facts presented, and different or additional facts could change the outcome. Under STAR policy, letter rulings can only be relied on by the taxpayer to whom they were issued.

Citations and references

Statutes and rules:

• 34 Tex. Admin. Code Rule 3.301(a)(2) (tax base for merchandise redeemed for trading stamps)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9602932L

Original ruling text

February 7, 1996

Dear **:

Thank you for your letter of January 15, 1996. You asked that we address the
taxability of a trading stamp promotion.

As I understand it, customers will receive trading stamps based on the number
of gallons of gasoline purchased from gas pumps located in the grocery store
parking lots. When a customer obtains the necessary stamps to fill a card, the
completed card may be redeemed for the items listed on the card. The items may
be a combination of taxable and nontaxable food items. The card will contain
the following statement: "According to local and state regulations, customer
is responsible for any and all sales tax."

Redemption of trading stamps by exchanging merchandise for the stamps is
treated as a retail sale. Retailers redeeming trading stamps must collect and
remit sales tax on the taxable items based on the redemptive value of the
stamps surrendered or on the reasonable retail price of the taxable merchandise
exchanged in the transaction, whichever is the larger. Please refer to
Subsection (a)(2) of Rule 3.301.

Based on the example included with your letter, you should collect tax from
your customer on the retail value of the sodas. Tax is not due on the bread,
eggs, tortillas, or chips.

This opinion is based on the facts presented. If there are any additional or
different facts, the opinion may change.

You may call me toll free at 1-800-531-5441, ext. 5-0037. The direct line is
512/475-0037. You also may write to Sales Tax Policy Division, Comptroller of
Public Accounts.

Sincerely,

Lindey Osborne
Sales Tax Policy Division