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Bulletin #24

Taxpayer Services Division
Revised 1/16/90

This Bulletin is superseded by PS 98(1)

Sales Tax Treatment of Coupons
The purpose of this revised bulletin is to restate and clarify the DRS's position on the sales tax treatment of purchases made with various types of coupons, and to amend our previous position with respect to "dining out" cards and coupon books, in light of a recent Connecticut Supreme Court decision.

1. PRICE REDUCTION COUPONS In general, sales tax treatment of purchases made or items obtained using coupons which result in a reduced price to the consumer is based on whether or not the retailer can be reimbursed for the coupon by a manufacturer or other third party.

NON-REIMBURSABLE COUPONS The redemption of retailer's discount coupons, "cents off," "two for the price of one," "buy one get one free," "one cent sale" coupons and the like, is not to be treated as part of the consideration for taxable sales of merchandise, if the retailer cannot be reimbursed for the coupon from a manufacturer or other third party. In such cases the redemption of the coupon results in a price reduction by the retailer, and sales tax is to be calculated on the reduced price, without taking into consideration the face value of the coupon.

Coupon sales involving price reductions given after the sale, upon presentation of the coupon at the retailer's service desk, window, or the like, are also taxable only on the reduced price, provided the retailer cannot be reimbursed for the coupon.

REIMBURSABLE COUPONS The redemption of a coupon by a retailer for which the retailer can obtain reimbursement, whether the coupon is issued by a manufacturer, other third party or the retailer itself, is part of the consideration for a sale. Sales tax should be calculated on the basis of the amount actually paid by the customer plus the face value or higher value assigned by the retailer of any such coupon redeemed.

2. CASH EQUIVALENTS Retailers should continue to collect sales tax on the full retail price of purchases made with vouchers, gift certificates, trading stamps or similar items (whether called "coupons" or not) which are in the nature of cash equivalents and not price reductions. Such items are deemed to be intangible rights to purchase tangible personal property in the future, and thus are not taxed when acquired. However, purchases made with such items are taxable, based on the retail price of such purchases.

"DINING OUT" CARDS AND COUPONS Following Dine Out Tonight Club, Inc. v. Department of Revenue Services, 210 Conn. 567, issued April 4, 1989, sales items such as "Dine Out" cards and "Entertainment" coupon books which are purchased in advance are no longer taxable when purchased, since the court deems such books and cards to be intangible property. However, effective March 1, 1990, free meals received by persons using such cards or coupons are now subject to sales tax on the price that would have been paid for the meal if it had been purchased, consistent with the rationale for the treatment of other cash equivalents.

3. PROMOTIONAL ITEMS When a retailer gives promotional items away free to its customers, when such giveaway is not in connection with a sale such as a "two for the price of one," "buy one get one free," or similar offer, and regardless of whether a coupon is involved, the retailer is subject to use tax on the cost of such promotional items.

4. REBATES This ruling does not affect the obligation of a retailer to collect tax on the full sales price paid, even though the purchaser may later obtain a cash rebate from the manufacturer.