Coupons, Discounts and Rebates
Manufacturers, vendors, and other third parties often offer incentive programs for credits or payments based on your purchases of inventory or sales of products to your retail customers. These payments and credits include offers such as purchase and cash discounts, coupon reimbursements, ad or rack allowances, buy-downs, scanbacks, voluntary price reductions, and other incentives, promotions, and rebates. “Third party” means a person other than the retailer or the retailer’s customer, such as a manufacturer or retailer’s vendor. Please refer to Regulation 1671.1, Discounts, Coupons, Rebates, and Other Incentives, for additional information.
Publication 113 • LDA For additional information you may download regulations, forms and publications from our website or you may call our Taxpayer Information Section to talk to a Board of Equalization representative. BOE website and Board Member contact information: www.boe.ca.gov Taxpayer Information Section 800-400-7115 TTY: 711 Taxpayers’ Rights Advocate 888-324-2798
Taxable discounts and coupons
Manufacturer coupons Manufacturer coupons are paper or paperless coupons allowing customers to receive a percentage or amount off the advertised selling price when purchasing the manufacturer’s product. If you accept manufacturer coupons, amounts paid by manufacturers to reimburse you for the value of the manufacturer’s coupons are included in your total taxable sales when the sale is subject to tax. Double discount As a retailer, you may offer a “double discount” to customers for certain manufacturer coupons. For example, your customer presents a manufacturer’s coupon offering $1 off the purchase of a specific product. In turn, you also allow an additional $1 off the selling price. In this case, the value of the manufacturer’s coupon is included in your total taxable sales. The additional $1 discount you provide to your customer is not subject to tax.
Nontaxable discounts and coupons
Prompt payment cash discounts As a retailer, your total taxable sales are reduced by the amount of cash discounts you offer your customers for prompt payment by that customer. If the customer does not make prompt payment, your taxable sales are the amount billed.
BOARD OF EQUALIZATION
BOARD MEMBERS (Names updated 2011)
KRISTINE CAZADD Executive Director BETTY T. YEE First District San Francisco SEN. GEORGE RUNNER (Ret.) Second District Lancaster MICHELLE STEEL Third District Rolling Hills Estates JEROME E. HORTON Fourth District Los Angeles JOHN CHIANG State Controller
State Board of Equalization • Coupons, Discounts, and Rebates • December 2010
Excess tax reimbursement for cash discounts If you allow discounts for prompt payment, but charge customers sales tax computed upon the prices before the discount is deducted you are collecting excess tax reimbursement. For example: A sale is made for $100 plus $8.25 sales tax. Upon prompt payment for the item the purchaser is allowed a discount of two percent of the sales price of $100. Since you are deducting the amount of the discount, $2, from taxable gross receipts, you are charging tax of $8.09 (8.25 percent of $98) to your customer. When a discount of two percent is offered for prompt payment and an error is made and the discount of two percent is excluded from the computation, excess tax reimbursement of $0.16 will be collected from your customer ($8.25 - $8.09 = $0.16). The excess tax reimbursement should be returned to your customer or must be paid to the state. Please refer to Regulation 1700, Reimbursement for Sales Tax, for additional information on excess tax reimbursement. Note: While this example shows tax calculated at a rate of 8.25 percent, you should use the rate in effect at your business location. Please see publication 71, California City and County Sales and Use Tax Rates, for current tax rates.
Purchase discounts Purchase...