Sales Tax Articles
Sales Tax State Activity Update - October 2007
Connecticut Counters Confusion on Coupons and Promotions
The Connecticut Department of Revenue services has issued a Policy Statement, PS 2007 (5) dealing with the calculation of gross receipts subject to sales and use taxes when coupons or electronic price reduction cards (scan cards) are used to make purchases of tangible personal property or taxable services. PS 2007 (5) also describes the tax treatment of cash equivalents, promotional items furnished by retailers, and rebates. This new policy statement supersedes Policy Statement 98(1.1).
Coupons and Scan Card discounts which reduce the sale price at the time of the sale are excluded from the tax base. It does not matter that the retailer will be reimbursed for the coupon in whole or in part by the manufacturer of the property sold or by a third party.
Dollar-Off or Percentage-Off coupons that are used to reduce the purchase price of an entire sale must be allocated between taxable and nontaxable items. The method used to allocate the coupon amount is the percentage method. The coupon amount is allocated based on the individual sales price of each item to the total sales price.
Discounts for opening a store charge card, which are applied at the time of sale, are not subject to tax, and therefore reduce the sales amount to which the tax is applied. If a sale includes taxable and nontaxable items an allocation method must be applied such as the one described for Dollar-Off coupons.
Cash equivalents such as gift certificates, vouchers, and coupon books, are not subject to tax at the time of issue or purchase. Upon redemption of the property or service the tax will apply to the retail price of such items.
Rewards and Points Programs which reduce the selling price on a future purchases are treated like coupons if offered by the retailer and cash equivalents if offered by a third party, such as a credit card company.
Promotional items sold at deep discounts, such as in a one cent sale, are subject to sales tax but only on the amount the retailer charges for the merchandise. A buy one-get one free sale, which does not require a coupon for redemption of the free item, are treated as being given away. In the latter situation the retailer is making a taxable use of the free item and must pay use tax based retailers cost.
Rebates are included in the selling price and therefore subject to tax. The later applies even if the rebate is assigned to a retailer which is a common practice in new motor vehicle sales.
The policy statement can be viewed on the State of Connecticut Website (PDF)
(Connecticut Department of Revenues Services, PS 2007(5), 9/18/2007)
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