Coupons are used by businesses to drive traffic and increase sales. They always appeal to a portion of the population, and tend to become more popular during times of economic hardship. Some people even organize their shopping around coupons. Yet how do coupons affect sales tax? The Virginia Tax Commissioner has an answer.
A recent ruling issued by the Virginia Tax Commissioner reveals the proper way to tax sales made with retailers’ coupons. (PD 12-161). The case involves a Taxpayer in the business of automotive repair services. The Taxpayer uses newspaper coupons–“considered retailers’ coupons under Virginia sales and use tax policy”–to offer discounts on parts. Relevant Virginia Administrative Code states:
“The value of a retailer’s coupon is not included in the sales price of the advertised merchandise. For example, when a retailer accepts $.080 in cash and a retailer’s coupon valued at $.20 for a product, the tax is computed on $.80. The coupon has no value to the retailer and is an advertisement of a discount.” (Title 23 of the VAC 10-210-430).
The Taxpayer in this instance did charge sales tax on the full amount of parts, before deducting discounts from retailer’s coupons for customers. However, when the Taxpayer reported the sales, the reported and remitted sales tax was computed from the discounted sales. As a result, sales tax remitted was less than sales tax collected–something the Department of Taxation noticed during an audit.
The field audit staff went back to the books to determine “appropriate adjustments to the audit… .” The Taxpayer will receive a revised bill.