I go to the store to buy a box of Chocolate Frosted Sugar Bombs.
The normal full price is $5.
It’s on sale for $4.
I’ve got a coupon for $1 off the cost.
Should I be paying sales tax on $4 or $3.
I’m sure it’s not the $5 option.
Based on past experience, you’ll be taxed for the $4 rate.
However, sales tax is a matter of state law, so it’s theoretically possible that your local state and/or county will choose to tax you for the $3 or the $5.
If you’re in need of a good answer because you’re operating a business, consult your peers, a local business accounting specialist or your local revenue folks.
Where I work (a restaurant not retail,) all coupons get applied before tax is added, and the tax is then applied to the price AFTER the coupon.
I mean…the tax is what the business has to pay on the income they take in. Since the box was on sale for $4, and you got another $1 off, the store only got $3 from you, so they should only have to pay the tax on that $3, so therefore you should only have to pay the tax on $3.
But I might be wrong.
It often depends if it’s a manufacturer’s coupon or a store coupon. Store coupons are generally recognized to constitute sales, and so you pay tax on the net. Manufacturer coupons generally are account for after tax.
In Michigan (and I thought most states?), you’d get those Chocolate Frosted Sugar Bombs without paying sales tax at all.
Wait, what states tax food? That’s just wrong.
Anyway, this may be peculiar to Washington but apparently, while you normally get taxed on the actual price paid on a sale/coupon item as opposed to the full regular price (so in the OP’s example the tax would be applied to the $3 purchase price), it works differently on “free” items.
If you come in with a coupon to get an item “free”, or there’s a “buy one, get one free” deal, you still have to pay the sales tax on the full retail price of the “free” item (assuming, of course, that it’s a taxable item).
I don’t know why this is so, since “buy one, get one free” is essentially the same as “50% off”, and a person buying two items at 50% off is going to only pay half the normal sales tax. I suspect the tax code was written this way to close a loophole - perhaps businesses were using “buy one, get one free” promotions to clear out inventory to avoid other taxes, and the state wanted to make sure it got something.
In any case, I’ve noticed a lot of inconsistency from one store to the next as to whether or not the tax on a “free” item is actually collected.
ETA: Seeing Balthisar’s post, my observations may be related, since many of the “free” and “buy one, get one free” promotions do seem to be run by the manufacturers rather than the stores themselves. Those Pepsi bottlecaps with “Free 20 oz. Pepsi” printed on them, for example. Again, though, there’s inconsistency in whether the tax actually gets collected.
Around here, coupons are looked at as money rather than a price reduction, so that you are actually paying full price but the coupon counts as cash towards the purchase. So we pay full tax on the item.
Tennessee, for one. I think it’s wrong, too.
In your example, in Tennessee we’d pay tax on the $4 price. The coupon is treated as though it were cash and taxed accordingly. I’m not sure about free itmes, the only free items I’ve had lately have been free coffees at MickeyD’s and I wasn’t charged any tax.
In New York, a coupon issued by the store has tax on the price after the coupon has been used. A manufacturer’s coupon requires tax on the full value. In the former case, the store is cutting its price and thus is taxed on the lower price. With a manufacturer’s coupon, however, the store is being reimbursed for the coupon value, and actually makes a bit more money than if they don’t redeem the coupon.
New Mexico just stoped taxing nonprepared food about 3 years ago. Some news outfit calculated that everybody would still be paying the same amount of taxes, except those who were on food stamps. Food bought with EBT in the past wasn’t taxed, and so the people on support were going to pay, IIRC, $6 more per year on some other tax that they raised to make up for it.
Restaurant and prepared food is still taxed here, though.
For those of you concerned that I’m paying any taxes at all on my Chocolate Frosted Sugar Bombs…
If they are cereal, then no, I’m not paying any taxes at all.
If they are candy, then yes, Minnesota taxes them.
If they are something I just made up (or stole from Calvin and Hobbes), then I get to decide the tax status of them.
Does the consumer pay tax on the coupon part, or does the store/manufacturer pay that portion? Using the price example before, it seems to me that the costumer should pay tax on the $3 they spend, and manufacturers/stores pay the tax on the part covered by the coupon, the remaining $1…
Don’t most coupons say something to the effect of, “customer is responsible for all sales tax,”?
The consumer pays the tax to the store, which pays it to the state.
Also, if you read the fine print on any coupon, it says the person redeeming it is responsible for any taxes. This gets the manufacturer and store off the hook.
FTR, Florida taxes all food except milk, bread and raw eggs. Possibly one or two other staples, too- flour?
Why is it wrong to tax food? How about clothing? How about housing? How about books? How about transportation? . . . You can find reasons why almost anything should not be taxed.
But if the coupon is taxed like if were cash that is just wrong. If I agree to sell you my cat for $1 million and I accept as payment $5 and a little bit of worthless paper which says “valid for $999995 discount when buying a cat” then the state says you have to pay $5000 in tax? Now that really is nuts.
Sales tax is nuts anyway. Value added tax is far superior in every respect.
Yes, that covers the manufacturer reguardless of what the state does. At Albertson’s in Texas they 1) ring up the items 2) apply the coupons 3) then apply sales tax on the final total. So, at least in this state, sales tax is applied on the actual cash the retailer took in.
But since (with a manufacturer’s coupon) the retailer get’s reimbursed anyways, they are still collecting the full amount.
Interesting thread. The actual rules are of course very local (sometimes changing even intrastate), but I think the tax policy ideas discussed here are interesting.
Theoretically, sales tax should apply only to all consideration paid to a retailer in exchange for an item, and consideration includes not only money, but any other property and discharge from a preexisting debt (from the retailer to the purchaser). So, the issue is whether a coupon is more like a reduction of the consideration paid for the item or an element of the consideration paid for the item. I would argue that it is more like a reduction.
Consideration means giving up something. The purchaser who uses a coupon hasn’t given up anything because the coupon is only good gor exactly what they used it for (actually maybe this is very slightly wrong where the coupon has a cash value). The cat example above illustrates this very well.
So, if you live in a state where they tax the full price if you use a coupon, please tell your legislators that some dude on a message board thinks they have reached the wrong policy result.
As already correctly mentioned by several posters, if the coupon is a manufacturer coupon it is really a form of payment - the manufacturer reimburses the retailer (plus typically 8 cents handling fee). Hence the coupon is a type of tender, not a price reduction, and therefore the full tax would be due. It is possible that some states have different rules, but what I have stated is certainly the norm.