I’m curious about the legality of charging tax on an item purchased with a coupon. When you purchase something with a coupon you’re taxed on the pre-coupon price. The merchant is surely pocketing the extra amount.
Here’s one example of how it depends on the type of coupon:
YMMV, depending upon your state’s laws, of course.
Why do you say that? I have worked on big retail systems including those that control supermarkets. Contrary to popular belief, supermarket chains avoid screwing customers in small direct ways like the plague. It isn’t worth it and doesn’t fit their business model of building long-term loyalty.
The systems that run their POS are complicated and tax laws are often ambigious on these types of matters. Retailers may have systems that are doing it incorrectly without realizing it or they might have been advised incorrectly.
That’s REALLY illegal. Money collected as tax MUST go to the gov’t. In fact, if you found out you are taxing people wrong (ie if the tax in your area is 5.65% and you just realized that all your registers are set to 6.65% the gov’t won’t give you the money back unless you have a way to return it to the customers who paid it. They won’t just hand it back to you.
Sigh. It seems you’ve gone out of your way to interpret this in the most negative way possible.
A coupon does not lower the price of the item. Rather, it acts like a type of money - money that can only be spent on that item. If I give you $1 to help buy a $5 item, does its price change to $4? No. It still costs $5, and the government is going to want tax on that $5, and the store is going to collect it for them.
Likewise, if the store or manufacturer gives you a $1 coupon to buy a $5 item, the item’s price does not change to $4. It’s still a $5 sale, and tax will be - and properly should be - collected for the $5 amount. The only difference with the coupon is that you personally don’t have to shell out the entire $5, just like you don’t if hand you a $1 bill.
The stores keep records of all coupons redeemed, and the government, as well as the manufacturers who provide coupons, see those records. I find your contention that the merchant is pocketing illegally collected sales tax both unintelligent and insulting.
I’ve never, ever been charged tax based on the pre-coupon price, anywhere in the many states of the country I’ve been to (well, and used coupons, so let’s say six states?). It’s not like special cash; it’s a price reduction. Coupons plainly indicate that their cash value is something trivial, like 1/20 of 1¢. That’s not to say that it’s not so in some states, but I’d throw a fit if some asshat merchant tried to pull something like that on me in Michigan.
You will be charged full tax on rebates though. Rebates are different from coupons in that you purchase the item first, and then receive the rebate, even if it’s a single transaction. You’ll get this when purchasing cars, for example, or when purchasing new car batteries or other parts that have the prices advertised as “with core exchange.”
Don’t buy anything with coupons in New York then. You won’t be happy.
Manufacturers’ coupons plainly state that the merchant will be reimbursed for the amount of the coupon. The item in question IS being sold for its pre-coupon value, and the state is owed the tax for all of it.
Discounts offered by the retailer, whether through printed coupons, “club cards,” or coupon matching, DO reduce the actual sale price, and tax is only owed on the amount paid at the register.
This is most certainly true in Michigan: Warning! PDF
Ever read a coupon? They always say “Customer is responsible for all taxes.”
How the tax works depends on the state. Some are considered a discount, and you pay taxes on the price after the coupon amount is deducted.
In New York (pdf), the rules are this:
If you double coupons, it’s considered both, so you pay the tax on the item’s price minus the amount you doubled (e.g., $10 item, $1 coupon doubled: $8 plus tax on $9).
It has to do with state law. For instance, in New York when you buy a car it is taxed on the price before rebates. The sale price is stated on the official sales form, the state sales tax is added, then the rebate comes off of the total. The [@#$*!] New York State legislature covered that loophole. Now, that might not be the case in all states.
Anybody, or any merchant, that charges a tax and doesn’t remit that amount to the taxing body is asking for a whole lot of trouble. The mobile phone companies will bill a bunch of charges that are made to look like a tax but they are really not but they will not actually call it a tax. Fraudulantly collecting “taxes” is a good way to go to jail.
That makes sense of the manufacturer reimburses the retailer. However what if XYZ Stores prints a coupon for XYZ Brand merchandise?
Or in this example: a gentleman purchased the paper with a store coupon for $.15 off. He was upset because the clerk subtotaled the sales before scanning the coupon. He claimed that at the other store they scanned both before subtotaling. (I tried to no avail to get the manager later on to try both methods as the gentleman was most adamant about his local store’s scanning method.)
But in either case it was not a manufacturer’s reimbursment.
This is why coupons should be outlawed. Comsumerism should demand equal pay for equal goods. The worst case of course is airlines, where there can be 15 different prices paid for seats on the same flight. That can’t be in the public interest.
We once had a thread where people tried to argue against farming. I thought that pushed the outer boundaries of fringe beliefs. I would never have believed that someone would argue against coupons and discounts in the name of public interest.
Your conclusion is unfounded. There are many who would disagree.
Read the link in post #2.
If a store offers a coupon for $2 off, that is treated as a reduction in sale price, and only the selling price is taxed.
if a manufacturer offers a $1 off coupon (retailer is reimbursed) then the coupon is the same as paying $1 cash for the item, the tax is on the full selling price before coupon.
If the store doubles a manufacturer coupon, then you split the difference. The manufacturer part is taxed, the store part is not.
with modern electronic scanner/registers, I am betting that the register gets the tax correct, as at least in California the franchise tax board makes a school of great white sharks look like pussy cats.
A store-issued coupon is an offer to cut the price the store charges, on presentation of the coupon. A manufacturer’s coupon is an inducement to buy their product by paying a part of the price the store charges for it.
Suppose you are, say, a clergyman called by a church which has agreed to pay $10,000 towards your buying a house for your family. You locate a house and haggle with the owner, getting him to come down $10,000 on the price of the house, from $150,000 to $140,000. Thanks to the church, the amount, in down payment plus mortgage, that you need to come up with is $130,000. But the price the house changes hands for is not the $150,000 asking price, nor the $130,000 you yourself have to pay (or borrow and pay back by mortgage), but the $140,000 final agreed figure. And if there’s a real estate transfer tax of $1 per $1,000 of agreed price, you need to pay a $140 tax payment.
The parallel is, I think, fairly clear. To induce you to buy the house, the homeowner lowered his price. If he gave you a coupon for $10,000 and you redeemed it at closing, it would amount to the same thing. On the other hand, the agreement between you and the church is not relevant to the agreement between you and the homeowner – they’re subsidizing your house purchase as an inducement to hire you, but their contribution is a part of the agreed price.
If the store cuts the price on an item, whether by marking it down or printing a coupon you can redeem when buying the item, they have reduced their asking price. If a manufacturer offers, by coupon, to pay 50 cents when you buy his brand of merchandise, that has nothing to do with the store (except whether they will accept and redeem the coupon). Their price for the item has not changed; what’s changed is that they will collect their listed price less 50 cents from you, and the 50 cents from the manufacturer later.
Rick and Polycarp, you both said that when the store prints the coupon that it is a price reduction but as seen in my example above, a real life event, the price is reduced but the amount taxed is not the reduced price. Which brings me back to my question: What is the legality of a store charging tax on an amount greater than the sales price of an item.
It depends. State laws may differ on the entire subject; franchise chains may reimburse individual store owners for nationally issued coupons; some coupons may look like store coupons, but nonetheless be reimbursed. All we can say is that in general, tax must be charged on the actual sale price of an item, and no more.
MIssed the edit window:
This has nothing to do with when the coupon is scanned; at my local stores, the subtotal is just a display for the consumer’s benefit; coupons, club cards, and such can be scanned at any time. The true price and any resulting tax will be calculated on each item at the end.
I’d also like to ask: in your example, the coupon was for 15 cents off … what? Some “coupons” may actually be more like store money than what we’ve been discussing here.
At national drug store for the Sunday paper. Price of paper is 1.50. The coupon was for 50% off (or quoted .75 I don’t remember.)
I realize the difference between store computer software, scanning, application of sales tax, etc., which was why I tried to talk the manager into gathering emperical evidence.