Coupon values can be subject to excise tax


POSTED: Monday, March 30, 2009

Question: I recently went to Walgreens to purchase Colgate toothpaste, which was on sale. In their advertisement it stated, “;Our price $3.49 less (instant) coupon $2.50—Final Cost 99 cents.”; I expected the total cost to be $1.05, with tax. However, when the cashier rang it up, it totaled $1.15. When I queried how there could be 16 cents tax on a 99-cent purchase, I was told that the invisible “;coupon”; has a cash value and that the cash value is also taxed. I have never heard of a coupon such as this having a “;cash value.”; Is this legal? Can they charge extra tax like that?

Answer: It depends on what kind of coupon is involved, but it appears this was an appropriate assessing of the state's general excise tax.

The state Department of Taxation previously explained to us when the value of coupons can be taxed. It said what we were told previously still holds true, as follows:

Subtracting the value of a coupon before or after tax is added depends on whether the seller will be reimbursed by a third party.

If there is reimbursement, the seller will have to pay the general excise tax on the full sales price before the coupon is deducted.

For example, you have a 50-cent coupon for a $5 item. The seller will receive $4.50 from you and 50 cents from the manufacturer for a total of $5. The seller must pay the general excise tax on the full amount, so likely will pass that cost on to you.

In the case you describe, Walgreens received 99 cents from you, plus $2.50 from Colgate, for a total of $3.49. The general excise tax of 4.7 percent equals 16.4 cents.

If the seller itself issues a coupon, it is, in effect, giving customers a cash discount.

So, if you had a 50-cent store coupon for a $5 item, the store would receive only $4.50 in actual payment. So the state would only require the general excise tax to be assessed on $4.50.

As we've also explained previously, the general excise tax is not a sales tax, but a tax on businesses. It is up to businesses to decide whether they will pass on the tax, either visibly as a GET or as part of the price of an item.



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