August 31, 1984

You inquire about the application of the sales tax to car rentals in connection with which customers present coupons to a car rental company. The customers receive the coupons in exchange for having done a specified amount of business with certain hotel or airline companies. Each coupon entitles a customer to one day's free car rental.

The car rental company receives no cash reimbursement from the hotel or airline companies or from any other source for the coupons. However, the coupon arrangement is part of an agreement under which the hotel, airline and car rental companies promote each others' businesses. (The airline companies, for example, use the name of the car rental company in some of their advertising.)

The sales price on which the sales tax is based is the total amount paid as consideration for a retail sale, valued in money or otherwise. G.L. c. 64H, § 1(14). Section 1(14)(c)(i) of Chapter 64H provides that, in determining the sales price, "cash discounts allowed and taken on sales" shall be excluded.

The Department of Revenue's Sales and Use Tax Regulation on Discounts, Coupons and Rebates (330 CMR 64H.09) states in Division (2):

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. .. .

Under the circumstances you describe, the car rental company is receiving consideration from the hotel and airline companies for accepting the coupons, in addition to any payment by the customer for the rental. Therefore, the "sales price" on which the sales tax is based is the usual price charged for the rental when no coupon is presented.

Very truly yours,

Commissioner of Revenue

IAJ:JXD:cm

LR 84-76