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Coupon values can be subject to excise tax


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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.

 

Auwe

To the driver of a white Chevrolet minivan who made an illegal left turn from Kapiolani Boulevard to Keeaumoku Street around 5:30 p.m. March 17. I was honking at you from behind to warn you not to make the turn since there were at least three signs that said “;NO LEFT TURN,”; but you made the turn anyway. Please kokua and pay more attention next time.—No Name

 

Mahalo

To the Ohana Waikiki Malia hotel and its manager, Nora Waxman, and to Apria Healthcare in Pearl City. I recently returned from a week's stay in Hawaii and want to make disabled visitors aware of the courtesy and flexibility the hotel offered. I'm totally disabled, in a power wheelchair, and needed medical equipment in a hotel that would accommodate me. I had a hospital bed, patient lift, ventilator and other medical equipment delivered by Apria—thank you, Frannie! The hotel management was generous and considerate to my needs. Any handicapped visitor to Oahu would be happy to know of such a nice place that exhibits the essence of aloha! Kudos to Nora Waxman.—Coni Foster