Code of Massachusetts Regulations › 830 CMR - DEPARTMENT OF REVENUE › Title 830 CMR 64H.00 - Sales and Use Tax › Section 64H.1.4 - Discounts, Coupons and Rebates

Current through Register 1525, July 5, 2024
(1)
Discounts
. Cash discounts allowed and taken at the
			 time of sale are excluded from the sales price of tangible personal property
			 upon which the sales tax is based. Cash discounts which are given to customers
			 after the time of sale are not excluded from the sales price. Any discount for
			 early payment offered to customers who purchase tangible personal property on
			 credit is included in the sales price.
Trade discounts allowed and taken at the time of sale on sales
				to certain customers of a business are excluded from the sales price of
				tangible personal property upon which the sales tax is based.
Generally, where property is transferred from a vendor to a
				customer for no additional consideration, or for a nominal consideration, or
				for an amount substantially below cost, the property constitutes a promotional
				item for sales tax purposes, and the vendor is considered its consumer. In this
				situation, the vendor must pay a sales or use tax based upon the amount the
				vendor paid for the item. The vendor may claim a credit for any tax collected
				from the retail customer. An item sold by a vendor at 50% or less of the
				vendor's cost will be presumed to be a promotional item sold at substantially
				below cost. Situations in which this presumption may be rebutted include, but
				are not limited to, clearance sales, end-of-season sales, fire sales,
				going-out-of-business sales, and situations where the sales price paid by the
				retail customer is reduced by manufacturers's coupons or rebates to 50% or less
				of the vendor's cost.
Example 1
: At the time of sale,
				Retailer A offers senior citizens a 20% discount on calculators usually priced
				at $20.00. The sales price subject to tax is $16.00. ($20.00 less $4.00
				discount).
Example 2
: At the time of sale,
				Retailer B offers customers a 10% discount on the usual price of light bulbs,
				if the customer purchases 50 light bulbs or more. A customer purchases 50 light
				bulbs, which usually sell for $1.00 each. The sales price subject to tax is
				$45.00. ($50.00 less $5.00 discount).
Example 3
: Retailer C offers any
				customer who purchases a camera on credit a 2% discount for payment within ten
				days. A customer purchases a $200.00 camera on credit. The sales price subject
				to tax is $200.00, whether or not payment is made within ten days.
Example 4
: At the time of sale,
				retailer D allows electricians a trade discount of 5% off list price on all
				purchases of electrical equipment. An electrician purchases electrical
				equipment which lists for $30.00. The sales price subject to tax is $28.50.
				($30.00 less $1.50 trade discount).
Example 5
: A cellular telephone
				carrier offers to sell a new cellular phone for $19.95 to any customer who
				agrees to become and remain a subscriber for one year. The wholesale cost to
				the carrier of the cellular phone is $200.00. The cellular phone is a
				promotional item within the meaning of 830 CMR 64H.1.4(1). The carrier may
				collect tax of $1.00 from the retail customer (5% of $19.95). In that event,
				the carrier must also remit use tax of $9.00 (5% of $200.00 less $1.00 credit
				for tax collected from the retail customer).
See
DOR Directive
				94-2.
Example 6
: A hardware store purchases
				beach umbrellas at $20.00 wholesale. The vendor begins selling the umbrellas on
				Memorial Day for a retail price of $49.99 and marks them down as the season
				progresses. On Labor Day the remaining stock is marked down to $9.99. The sales
				price subject to tax on the umbrellas sold on or after Labor Day is $9.99. The
				beach umbrellas are not a promotional item within the meaning of 830 CMR
				64H.1.4(1).
(2)
Coupons
.
(a)
Manufacturer's and Retailer's Coupons
. For purposes of
			 830 CMR 64H.1.4(2), a "manufacturer's coupon" is a coupon issued by the
			 manufacturer, supplier or distributor of tangible personal property to be
			 redeemed by a retail purchaser of that property. A "retailer's coupon" is a
			 coupon issued by a retail vendor. Generally, manufacturer's coupons and
			 retailer's coupons that entitle the retail customer to a reduction in the sales
			 price at the time of the sale will be treated like cash discounts.
See
830 CMR 64H.1.4(1). Other types of coupons will not be
			 treated as cash discounts.
See
830 CMR 64H.1.4(2)(c).
If a vendor offers customers, upon presentation of a
				manufacturer's or retailer's coupon, a discount from the usual price of
				merchandise, the amount of such a discount is excluded from the sales price of
				tangible personal property upon which the sales tax is based, regardless of
				whether the retail vendor receives any reimbursement from the manufacturer,
				supplier or distributor.
If a vendor offers customers, upon presentation of a
				manufacturer's coupon, a discount on the usual sales price of tangible personal
				property at double the value of the coupon, the tax is levied on the discounted
				sales price of the property, regardless of whether the vendor receives any
				reimbursement from the manufacturer, supplier or distributor.
(b)
Scan Cards
.
			 Manufacturer's and retailer's coupons in paperless form will generally be
			 treated the same as paper coupons.
(c)
Other Coupons
.
			 Coupons, certificates or vouchers issued in connection with "bundled
			 transactions" are not manufacturer's or retailer's coupons and any resulting
			 reduction in the amount paid by the retail customer will not be treated as a
			 cash discount. A "bundled transaction" includes, but is not limited to, one in
			 which a vendor transfers tangible personal property to a retail customer for a
			 reduced price in exchange for the retail customer's agreement to purchase
			 services for a minimum service period, either from that vendor or another party
			 that has a contractual arrangement with the vendor of the tangible personal
			 property.
(d)
Coupons
			 for Free Merchandise
. If a vendor offers customers, upon
			 presentation of a coupon, merchandise unconditionally free of charge,
			 merchandise free of charge with the purchase of other merchandise, two items
			 for the usual price of one, the sales price subject to tax is the amount the
			 vendor charges the customer. If a vendor gives a customer an item
			 unconditionally free of charge upon presentation of a retailer's coupon, the
			 vendor is generally considered the consumer of that item and is responsible for
			 the payment of a sales or use tax based upon the amount the vendor paid for the
			 item.
Example 1
: A manufacturer's coupon
				entitles retail customers to a 50¢ discount on Brand X detergent. Retailer
				E accepts the coupon and $2.50 in payment for the detergent which the retailer
				would otherwise sell for $3.00. The manufacturer of the detergent reimburses E
				57¢, which includes 7¢ for handling, for the coupon. The sales tax is
				13¢. (5% of $2.50).
Example 2
: Retailer F offers customers
				two hamburgers for the usual price of one, upon presentation of its retailer's
				coupon. Customers obtain these coupons free of charge either from the retailer
				or from a newspaper. Each hamburger usually sells for $1.50. F is not
				reimbursed for the coupon. The sales tax on the two hamburgers is 8¢. (5%
				of $1.50).
Example 3
: Retailer G offers customers
				a 50¢ discount on all packages of paper plates priced at $1.50 upon
				presentation of a retailer's coupon clipped from a newspaper and a purchase of
				$10.00 or more. G is not reimbursed for the coupon. The sales price subject to
				tax is $1.00. ($1.50 less 50¢ discount).
Example 4
: An internet service
				provider gives each new subscriber a coupon entitling the subscriber to $100.00
				off any computer purchased from Retailer J. The internet service provider buys
				the coupons from Retailer J for $75. The subscriber purchases a computer from
				Retailer J costing $600.00 and pays with $500.00 in cash and the $100.00
				coupon. The sales price subject to tax is $600.00 because the coupon is neither
				a retailer's coupon nor a manufacturer's coupon.
Example 5
: Retailer K offers customers
				who present a manufacturer's coupon a discount at double the face value of the
				coupon. A soap manufacturer offers retail purchasers a coupon worth 20¢
				off a bar of its soap which K sells for $1.00. A customer presenting this
				coupon receives a discount of 40¢ from K. The manufacturer of the soap
				reimburses K 27¢ for each coupon. The sales tax on the soap bar is 3¢
				(5% of $.60).
Example 6
: With the purchase of a
				$40.00 pair of shoes (a nontaxable item), Retailer L offers customers a free
				bottle of shoe polish (a taxable item) upon presentation of his retailer's
				coupon. L is not reimbursed for the coupon. L's customer pays no sales tax on
				this transaction. L's purchase of the shoe polish is subject to tax.
Example 7
: Retailer M mails each of
				his customers a coupon redeemable for one free bottle of detergent. M receives
				no reimbursement for the coupon. M must pay a use tax on each bottle he gives
				away based upon the amount he paid for the detergent.
Example 8
: Grocery store N offers a
				"scan card" program, which entitles holders of the card to savings on certain
				advertised merchandise, which varies from week to week. N offers scan card
				holders a 40¢ savings on paper towels regularly priced at $1.20. A scan
				card customer purchases the paper towels and also redeems a 30¢
				manufacturer's coupon. N must collect tax of 3¢ (5% of 50¢). N has no
				use tax liability even though the towels are sold for 50% or less of the
				vendor's cost. The paper towels are not a promotional item within the meaning
				of 830 CMR 64H.1.4(1).