Sales Tax State Activity Update - November 2008

Digital Airwaves - One Great Step for Television Clarity and One Huge Tax Headache

On February 17, 2009, all full-power broadcast television stations in the United States will stop broadcasting on analog airwaves and begin broadcasting only in digital. As a way to ease consumers into switching from an analog to digital broadcasting, The Federal Government has offered a $40 coupon. How does this affect sales tax when a consumer uses a government coupon for the purchase of a converter box? Various states differ on the calculation of the tax basis.

Since the announcement of the government coupon, a number of states have issued guidance on how to handle the tax calculation on the coupon for the digital converter box. Thus far, the states that have issued guidance are split on the basis calculation between a reduction of the price for the value of the coupon and the full amount of the purchase price.

States that are considering the coupon to be a reduction in the basis of the tax calculation include: WI, PA, FL, CT, KY, CA, IL, and TX. For example, if you paid $50 for a box, and the coupon $40 reduces the price to $10, the sales tax will be calculated on the $10, not the $50. In some cases, the state law already supports this method of the basis calculation, in other cases they consider the coupon to be a sale to the US government and therefore not taxable on the coupon.

Then there are states that will calculate the full amount of the sale price with no deduction for the coupon. Therefore, if the converter box cost $50, and the $40 coupon is presented to the seller, the sales tax will be calculated on the $50. Such states include: NY, TN, UT, OH, NE, SC, NM, NC, VA, and KS. Their view is that the transaction is between the seller and the purchaser. The coupon issued is being reimbursed by a third party, and therefore sales tax is calculated on the full price.

The full text state’s guidance can be viewed at the following web sites;

California State Board of Equalization
State of Connecticut Department of Revenue Services
Florida Department of Revenue
Illinois Revenue
Kentucky Department of Revenue
Kansas Department of Revenue
Nebraska Department of Revenue
North Carolina Department of Revenue
New Mexico Taxation and Revenue Department
New York State Department of Taxation and Finance
Pennsylvania Department of Revenue
Ohio Department of Taxation
South Carolina Department of Revenue
Tennessee Department of Revenue
Texas Comptroller of Public Accounts
Utah State Tax Commission
Virginia Department of Taxation
Wisconsin Department of Revenue

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