Is the charge for a membership coupon book — which contains order forms customers use to order manufacturer coupons redeemable for discounts — subject to Texas sales tax?

Plain-English summary

A company asked the Comptroller whether the sale of its membership coupon book is taxable. The book itself doesn't contain redeemable coupons directly — it contains order forms that let a person order manufacturer coupons, which can then be redeemed for the manufacturer's products at a discount.

The Comptroller ruled that the charge for the coupon book is not taxable, treating the sale as the sale of an intangible rather than a sale of taxable tangible personal property.

That doesn't mean no tax is due anywhere in the transaction, though. The Comptroller noted that the company takes possession of the printed coupon books at its offices in "CITY A, Texas" before mailing them out to customers. Since the sale of the books to customers isn't taxable, the tax instead falls on the company's own purchase of the printing — the company should pay tax on the charge to print the coupon books.

What this means for you

Businesses that sell coupon books, passbooks, or similar order-form products

If what you're selling is really the right to order coupons or discounts (an intangible), rather than a tangible item with independent value, the charge to your customer may not be taxable. But don't assume that means the whole transaction is tax-free — you may owe tax as the consumer of printing or production services used to create the product, since you (not your end customer) are the one taking possession of the printed materials.

Accountants and tax professionals

This letter illustrates a "sale of an intangible" theory for coupon/passbook products, where the substance of what's conveyed (the right to order coupons) controls over the physical form (a printed booklet). Where that logic applies, watch for a shift in the tax obligation to the seller's own inputs, such as printing costs, rather than the retail sale.

Common questions

Q: Is the charge for a membership coupon book subject to Texas sales tax?
A: No, according to this letter — the sale of the coupon book is treated as the sale of an intangible and the charge is not taxable.

Q: If the coupon book sale isn't taxable, is any tax due at all?
A: Yes. The company should pay tax on the charge to print the coupon books, since it takes possession of the printed books at its Texas offices before mailing them to customers.

Q: Does it matter that the coupon books are mailed to customers from Texas?
A: Yes, per the letter — the Comptroller's answer presumes the company takes possession of the coupon books at its Texas offices and mails them from there, which is part of why the printing charge is taxable to the company.

Q: Can another business rely on this letter for its own coupon book product?
A: No. The opinion is based on the facts presented, and if there are additional or different facts, the opinion may change.

Citations and references

No specific statutes or rule numbers were cited in this letter.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9605L1414A04

Original ruling text

May 30, 1996

Dear ****:

In your letter, you asked if the sale of the membership coupon book is taxable.
The book contains order forms for a person to order manufacturer coupons that
can be redeemed for the manufacturer's products at a discount.

The charge for the books is not taxable.

I presume that your company takes possession of the coupon books at your
offices in CITY A, Texas and the coupon books are mailed to customers from
that location. Since the sale of the books is not taxable, your company
should pay tax on the charge to print the coupon books.

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

You may call me toll free at 1-800-531-5441 extension 50892. The direct line
is 512/475-0892. You may also write to Tax Policy Division, Comptroller of
Public Accounts.

Sincerely,

John J. Fitzgibbons, CPA
Tax Policy

NOTE: Previous Accession Number 9605290L