California Code of Regulations › Title 18 - Public Revenues › Division 2 - California Department of Tax and Fee Administration- Business Taxes (State Board of Equalization- Business Taxes, See Ch. 6 and 9.9) › Chapter 4 - Sales and Use Tax › Article 16 - Resale Certificates; Demonstration; Gifts and Promotions › Section 1671.1 - Discounts, Coupons, Rebates, and Other Incentives

Current through Register 2024 Notice Reg. No. 28, July 12, 2024
(a) In General. Retailers often engage in
				  marketing and sales programs in which they issue coupons or other indicia to
				  their customers that entitle the customers to a reduction in the amount they
				  are required to pay for products sold by the retailers. Manufacturers, vendors,
				  and other third parties often engage in various programs that result in credits
				  or payments made to retailers with respect to a retailer's taxable sale of
				  products to an end-use customer. These payments and credits include, but are
				  not limited to, purchase and cash discounts, coupon reimbursements, ad or rack
				  allowances, buy-downs, scanbacks, voluntary price reductions and other
				  incentives, promotions, and rebates. Under certain conditions, payments
				  received by the retailer in the form of rebates or other types of payments or
				  credits for products sold at retail are included in the retailer's gross
				  receipts or sales price from the sale of the product.
(b) Discounts.
(1) Cash discounts are offered by a retailer
				  to its customer for prompt payment by that customer. If the customer makes
				  prompt payment and takes the discount, the retailer's gross receipts are
				  reduced by the amount of the discount. Cash discounts allowed and taken on
				  sales are excluded from gross receipts. If, however, the customer does not make
				  prompt payment, the retailer's gross receipts are the amount billed. Generally,
				  discounts provided to customers utilizing a grocery store discount club card
				  are regarded as cash discounts or retailer coupons.
(2) Purchase discounts are given by a
				  manufacturer and/or wholesaler to a vendor (i.e., a retailer) based upon the
				  amount of prior or future purchases by that vendor. These discounts are
				  regarded as trade discounts and are excluded from gross receipts as they are
				  based on the number of products the retailer purchased from the manufacturer
				  and/or wholesaler and not the number of products sold by the vendor at retail.
				  Agreements wherein the retailer agrees to sell the products at a target price
				  for a period of time are also "purchase discounts" and excluded from gross
				  receipts when the discount is based on the number of products purchased by the
				  vendor. The rebates received either directly from the manufacturer or from the
				  wholesaler are not subject to tax since they are tied to the retailer's
				  wholesale purchases of the products, not to the number of retail sales made at
				  the target price.
(3) Ad or rack
				  allowances are contractual agreements usually between a manufacturer and the
				  retailer to advertise a product, or to give that product preferential shelf
				  space. Ad or rack allowances are also known as "Local Pay," "Display Shelf
				  Payments," or something similar. Such allowances are not related to the retail
				  sale of the underlying product and are excluded from gross receipts. Generally,
				  payments to a grocery store retailer pursuant to discounts offered through a
				  grocery store discount club card are regarded as ad or rack
				  allowances.
(4) Retailer coupons
				  are issued by a retailer in paper or paperless form. When presented to the
				  retailer by the customer, they entitle the customer to buy tangible personal
				  property at a certain amount or percentage off the advertised selling price.
				  Although the coupons are presented to the retailer to receive a reduction in
				  the selling price, retailer coupons do not result in compensation from a third
				  party. If the customer has not paid any consideration for the coupon, e.g., a
				  coupon clipped from a magazine or newspaper, the coupon represents a true price
				  reduction resulting in a corresponding reduction in the retailer's gross
				  receipts from the sale. If, however, the customer has previously given
				  compensation to the retailer for the coupon, e.g., the coupon was purchased as
				  part of a coupon booklet sold by the retailer to the customer, the pro rata
				  share of the cost of the booklet represented by the purchase for which the
				  coupon was given must be included in gross receipts.
(5) Manufacturer coupons are paper or
				  paperless coupons funded by the manufacturer that customers can utilize at the
				  time of purchasing the manufacturer's product, thus entitling customers to a
				  certain amount or percentage off the advertised selling price. These coupons
				  are generally identified as "manufacturer coupons" and include retailer
				  reimbursement terms that must be followed by retailers in order to redeem the
				  coupons. Amounts paid by a manufacturer to a retailer to reimburse the retailer
				  for the value of the manufacturer coupon are included in the retailer's gross
				  receipts. The retailer may, by contract, charge the customer sales tax
				  reimbursement on the amount paid by the manufacturer. When a retailer charges
				  such reimbursement, the amount on which the reimbursement is charged is fully
				  disclosed to the customer through the customer's utilization of the
				  manufacturer coupon.