Is Texas sales tax due on the full price of an item, or the discounted price, when a customer redeems a manufacturer's cash-savings check at a retailer?

Plain-English summary

A retailer (referred to as XYZ Drug Store) sold a six-pack of tapes for $5.99 and accepted a $3.00 "savings allowance check" issued by the manufacturer (ABC Corporation) toward the purchase. The retailer had been charging sales tax on the full $5.99 price and asked the Comptroller whether that was correct.

The Comptroller held it was not: the $3.00 check is a discount coupon under Rule 3.301(e), so its value is excludable from tax as a cash discount when the retailer accepts it as part of the selling price — regardless of whether the retailer is reimbursed for that $3.00 by the manufacturer. Tax should have been calculated on the discounted price of $2.99, not $5.99, and the retailer could refund the tax collected in error on the $3.00 discount.

What this means for you

Retailers who accept manufacturer coupons or savings checks

When a customer redeems a manufacturer-issued coupon or savings check as part of the price of an item, charge tax only on the discounted price actually paid — not the pre-discount sticker price — even if the manufacturer later reimburses you for the coupon's face value.

Accountants and tax professionals

If a retailer client has been taxing the full pre-coupon price on manufacturer coupon redemptions, they may have over-collected tax and could owe customers refunds for the excess, per Rule 3.301(e).

Common questions

Q: Is a manufacturer's coupon or savings check taxable as part of the sale price?
A: No. Under Rule 3.301(e), it's treated as a cash discount, and tax applies only to the discounted price actually charged to the customer.

Q: Does it matter if the retailer gets reimbursed by the manufacturer for the coupon's value?
A: No — the ruling is explicit that the coupon's value is excludable from tax "regardless of whether" the retailer is reimbursed.

Q: Can another retailer rely on this exact letter?
A: No. This is a Texas STAR letter ruling binding on the Comptroller only for the taxpayer it addresses (34 Tex. Admin. Code Rules 3.1, 3.10); confirm your own facts with a tax professional.

Citations and references

Rules:

• 34 Tex. Admin. Code § 3.301(e) (discounts, coupons, and other allowances)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9710068L

Original ruling text

October 15, 1997

Dear ***:

Thank you for your letter regarding the $3.00 savings allowance check by ABC
Corporation that can be redeemed by a retailer.

The $3.00 check is a discount coupon as explained in subsection (e) of enclosed
Rule 3.301. When the ABC discount coupon is accepted by XYZ Drug Store as part
of the selling price of the six-pack of ABC tapes, the value of the coupon
(i.e., $3.00) is excludable from the tax as a cash discount regardless of
whether XYZ is reimbursed for the amount represented by the coupon.

In other words, XYZ should have calculated the tax on the discounted price of
$2.99 rather than $5.99. XYZ can refund the tax you paid in error on the $3.00
discount.

This opinion is based on the facts you submitted. Other facts, though similar,
may yield different results.

You may call me toll free at 1-800-531-5441, ext. 5-0030. The direct line is
512/475-0030. You may also write to Tax Policy, Comptroller of Public
Accounts.

Sincerely,

David Somerville
Tax Policy Division