September 5, 1984

Restaurant A participates in a promotion sponsored and administered by Company B. In order to participate, A must pay for an advertisement, which includes a redemption coupon, in B's promotion booklet. The booklet is distributed to the public for little or no charge. Upon presentation of the coupon, a customer will receive a free meal, a free drink, or a discount on food upon the purchase of a full price food item or beverage from A. A agrees to submit redemption reports to B but, aside from the cost of the advertisement, no monetary consideration passes between A and B. You inquire whether the sales price of the free food, free beverage or discount is included in the sales price on which the meals tax is based.

"Sales price" is defined as "the total amount paid by a purchaser to a vendor as consideration for a retail sale, valued in money or otherwise." (G.L. c. 64H, § 1(14)). In determining the sales price, cash discounts allowed and taken on sales are excluded. (G.L. c. 64H, § 1(14)(c)(i)).

If a retail 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, or a discount from the usual price of merchandise, and the retail vendor receives any reimbursement from a manufacturer, distributor, promoter or other source for the coupon, the sales ' tax is levied on the usual sales price of the property. The reimbursement may be in any form, including cash or credit towards the purchase of additional merchandise. If a vendor receives no reimbursement for the coupon from any source, the sales price subject to tax is the amount the vendor charges the customer. (830 CMR 64H.09(2)).

Since Restaurant A receives no reimbursement from any source for the coupons, the price of the free food, free beverage, or food discount is not included in the sales price on which the meals tax is based.

Very truly yours,

Commissioner of Revenue

IAJ:VGS:mf

LR 84-74