Iowa Administrative Code › Agency 701 - Revenue Department › Title III - Sales, Use, and Excise Tax › Chapter 203 - Elements Included in and Excluded From a Taxable Sale and Sales Price › Rule 701-203.3 - Retailers' Discounts, Trade Discounts, Rebates and Coupons

Current through Register Vol. 47, No. 3, July 24, 2024
(1)
Retailers' discounts.
A retailer's discount reduces the
				retailer's price of a property or service with the remainder being the actual
				sales price of the goods charged in the account. The purchaser entitled to the
				discount will never owe the retailer's price as a debt, the debt being the
				sales price after the agreed discount has been deducted. The word "discount"
				means "to buy at a reduction."
Benner Tea Company v. Iowa State Tax
				Commission,
252 Iowa 843, 109 N.W.2d 39 (1961).
Any discount a retailer allows that reduces a retailer's
				  price to a sales price is a proper deduction when collecting and reporting tax.
				  This is not the case when the retailer offers a discount to a purchaser but
				  bills and collects tax on the retailer's price rather than on the sales price.
				  The customer must receive the benefit of the discount, for sales tax purposes,
				  in order for the retailer to exclude the discount from the sales price when
				  collecting and reporting tax.
Certain retailers bill their customers on a gross and net
				  basis, with the difference considered to be a discount for payment purposes.
				  When a customer does not resolve the bill within the net payment period, tax
				  shall apply on the gross charge shown on the billing, the gross charge having
				  become the taxable sales price by virtue of the customer's failure to take the
				  action which allows the discount to be taken.
(2)
Rebates.
A "rebate" is a
				return of part of an amount paid for a product. Manufacturers' rebates are not
				discounts and cannot be used to reduce the sales price received from a sale or
				to reduce the purchase price of a product. This subrule applies even though the
				rebate is used by the retailer to reduce the retailer's price to a sales price
				or is used by the purchaser as a down payment. The rebate is considered a
				transaction between the manufacturer and the purchaser. See 1972 O.A.G.
				332.
(3)
Coupons.
Coupons issued by the producer of a product are not discounts and cannot be
				used as an abatement from the retailer's price of the product. Coupons issued
				by the retailer which actually reduce the price of the product to the purchaser
				are treated as a discount as provided in subrule 212.3(1).
Saxon-Western Corporation v. Mahin,
369 N.E.2d 1185 (Ill.
				1979).
EXAMPLE 1. C acquires a 30¢ off coupon issued by
				  manufacturer of A-B Bandaids for A-B Bandaids. The coupon can be redeemed at a
				  store which sells the product. C goes to store D and purchases a box of A-B
				  Bandaids which shows a price of $1.50. C pays $1.20 plus the 30¢ coupon. D
				  is reimbursed the 30¢ for the coupon by the manufacturer. Tax is due on
				  the $1.50 because D's total sales price is $1.50. The coupon is not used as a
				  discount in this situation.
EXAMPLE 2. E offers a two-for-the-price-of-one coupon for its
				  super hamburger. Each hamburger normally sells for $2. The coupon can only be
				  redeemed at E's retail store. F acquires the coupon and redeems it at E's
				  store. The purchase price for F was $2 for both hamburgers. The tax is due on
				  the $2 because this amount is the sales price for E, even though the value of
				  the two hamburgers would normally be $4. In this situation, the sales price for
				  the two hamburgers is $2.
(4)
Trade discounts.
A
				"trade discount" is a discount from a seller's list price which is offered to a
				class or category of customer, e.g., retailers or wholesalers. Trade discounts
				given or allowed by manufacturers, distributors, or wholesalers to retailers or
				by manufacturers or distributors to wholesalers and payments made by
				manufacturers, distributors, or wholesalers directly to retailers or by
				manufacturers or distributors to wholesalers to reduce the sales price of a
				manufacturer's, distributor's, or wholesaler's product (e.g., cigarettes) or to
				promote the sale or recognition of the manufacturer's, distributor's, or
				wholesaler's product are not to be included in any taxable sales price. This
				subrule does not apply to coupons issued by manufacturers, distributors, or
				wholesalers to consumers; see subrule 212.3(3).
This rule is intended to implement Iowa Code section
				  423.1(47)
"b"
(1).