Illinois: Sales tax on Discount Coupons
- Oct 4, 2012 | Gail Cole
Is the value of a discount coupon taxable? This issue was recently addressed in Illinois.
If you shop, there's a good chance you've encountered a coupon for $X off a purchase of $Y or more made between such and such dates.
Commonly referred to as Bounceback coupons (for the customer who bounces back to the store to redeem the coupon), the coupons are created to lure customers back to the store in a timely manner.
Earlier this year, a company in Illinois asked the Illinois Department of Revenue about how these coupons impact the Retailers' Occupation Tax of items purchased. ST 12-0006-PLR, which responds to this question, reveals that the issue hinges on whether or not the company receives reimbursement for the coupon.
According to 86 Ill. Adm. Code § 130.2125(b):
"If a retailer allows a purchaser a discount from the selling price on the basis of a discount coupon for which the retailer receives no reimbursement from any source, the amount of the discount is not subject to Retailers' Occupation liability."
In other words, if you spend $50 at a store and present an in-store coupon for $10, the retailer's gross receipts of $40 are subject to Retailers' Occupation Tax. As the purchaser, you pay sales tax on $40.
However, if the retailer will receive partial or full reimbursement for the coupon ("from a manufacturer, distributor or other source"), the Retailers' Occupation Tax liability is incurred on "receipts received from the purchaser and the amount of any coupon reimbursement." (86 Ill. Adm. Code § 130.2125(b).)
Illinois Administrative Code specifies that while the coupon issuer is technically responsible for the corresponding Use Tax on the value of the coupon, "in many cases, the coupon issuer incorporates language into the coupon that requires the bearer (the purchaser…) to assume this Use Tax liability."
Thus if you spend $40 at a store and present a coupon for $10 that will be reimbursed by a source, there is a good chance you would pay sales tax on the full purchase price of $50.
Read about how Illinois handles Groupon-like deals here.