Tax Type
Retail Sales and Use Tax
Description
Discount coupons; Allocation to sales price and tax
Topic
Taxability of Persons and Transactions
Date Issued
04-06-1988
April 6, 1988
Re: §58.1-1821 Application/ Sales and Use Tax
Dear********************
This will reply to your letter of November 3, 1987 on behalf of *********** (taxpayer), seeking correction of a sales and use tax assessment for the period February 1983 through January 1986.
FACTS
The taxpayer is a regional franchisee of a national retail delivery business. Virtually all of the taxpayer's sales are made over the telephone for direct delivery to its customers. To promote sales of its products, the taxpayer publishes promotional discount coupons in local newspapers from time to time. Typically, the taxpayer does not know at the time it receives a telephone order whether its customer intends to use a discount coupon in making the purchase. Rather, at the point of delivery, the customer presents the coupon, and the taxpayer's delivery person will deduct the coupon amount from the total sale price of the product. For example, on a ****with a delivered price of $10.45. (sale price plus applicable tax), for which a $1 coupon is presented, the taxpayer's employee would collect a total of $9.45 from the customer.
In a recent audit the taxpayer was held liable for the overcollection of the tax, since it failed to allocate the entire amount of its coupon discounts to the sales price of its ****** as required under subsection B of Virginia Regulation 630-10-27.2. The taxpayer contests the assessment, stating that since it began offering coupon discounts eleven years ago, it has consistently allocated its coupon discount amounts between sales price and sales tax, when filing its monthly sales tax returns, and that its coupons clearly state that the discount amount, "includes a rebate of sales tax, if applicable." Moreover, the taxpayer contends that based on the nature of its business, it would be administratively impractical for its delivery personnel to have to recompute the sales tax every time a customer uses a coupon to make a purchase. Accordingly, the taxpayer seeks correction of the assessment on its coupon sales, and seeks approval of its long standing practice of allocating coupon discounts between sales price and sales tax.
Lastly, for the reasons stated above, the taxpayer seeks the waiver of all penalties assessed in this case.
DETERMINATION
Section 58.1-625 of the Virginia Code sets forth the general rule that the sales and use tax be paid by the dealer, and that "the dealer ... separately state the amount of the tax and add such tax to the sales price or charge." §58.1-628 of the Code then provides a bracket system for the collection and reporting of the tax by all registered dealers.
However; §58.1-614(D) of the Code provides that when a dealer is able to demonstrate to the satisfaction of the Tax Commissioner that it is impractical to collect the tax in accordance with the bracket system it may be authorized to remit an amount based on a percentage of gross receipts which takes into account the inclusion of the sales tax.
Based on the unique nature of the taxpayer's business which makes it impractical to account for discount coupon's in the manner required by the bracket system and Virginia Regulation (VR) 630-10-27.2, I find basis for allowing the taxpayer to allocate its discount coupons between sales price and sales tax, provided its coupons continue to state that the discounts include a rebate of sales tax, and provided further that the discounts are reported to the department, (based on the current combined 4.5% state and local sales and use tax rate), in a manner consistent with the following example:
-
- Dealer receives a telephone order for a **** for delivery to its customer's home. The dealer bills the customer $10 for the****and $.45 for the tax. Upon delivery of the ******** the customer presents a valid $1 discount coupon, previously issued by the dealer, which contains the statement, "this coupon includes a rebate of sales tax", to reduce the purchase price of the *******. The customer is therefore entitled to a discount which is computed as follows:
Amount Billed: $10.45
Sales Price: 10.00
Tax .45
Less $1.00 Discount Coupon
$1.00 / 1.045 = .96 sales price discount
.04 tax discount
-
- Therefore, customer remits $9.45 which includes $9.04 in sales price and $.41 in sales tax. The dealer may deduct $.96 from gross sales, and will accordingly remit only $.41 in tax.
- Therefore, customer remits $9.45 which includes $9.04 in sales price and $.41 in sales tax. The dealer may deduct $.96 from gross sales, and will accordingly remit only $.41 in tax.
It should be noted however, that the alternative computation provided above is strictly limited to the unique facts and circumstances presented, and may not be used by the vast majority of other dealers which accept either manufacturer's or retailer's coupons at the point of sale to customers. If a dealer believes that based on its method of operation it might also qualify for the alternative computation method authorized in this determination, it must first submit a detailed ruling request in writing to the department to obtain such authorization
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner