830 CMR: DEPARTMENT OF REVENUE
830 CMR 64H.00: SALES AND USE TAX REGULATIONS
830 CMR 64H.00 is repealed and replaced with the following:
830 CMR 64H.1.4: Discounts, Coupons and Rebates
830 CMR 64H.1.4: Discounts, Coupons and Rebates
830 CMR: DEPARTMENT OF REVENUE
Table of Contents
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 per cent 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 manufacturer's coupons or rebates to 50 per cent or less of the vendor's cost.
Example 1: At the time of sale, Retailer A offers senior citizens a 20 per cent 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 per cent 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 per cent 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 per cent 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).
(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 per cent 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).
A rebate is a refund of an amount of money by the manufacturer of a product to the retail purchaser of the product.
If a vendor sells tangible personal property to a customer who applies a manufacturer's rebate to reduce the sales price at the time of the sale, such a rebate is generally treated like a cash discount and excluded from the sales price subject to tax.
However, if a vendor sells tangible personal property to a customer who will receive a rebate after the sale, the sales tax is based on the full purchase price of the property. Upon receiving the rebate, the customer is not entitled to a refund of taxes paid on the amount of the rebate.
If a vendor offers a customer a cash discount upon the purchase of tangible personal property and the customer also receives a rebate from the manufacturer of the property after the sale, the sales price subject to tax excludes only the cash discount given by the retailer. The amount of the manufacturer's rebate is not deducted from the sales price.
Example 1: Dealer O sells a truck for $18,000 to a customer who will receive a rebate of $2,000 from the manufacturer. At the time of the sale, the customer assigns his right to the rebate to the dealer as part of the downpayment on the truck. The $2,000 is treated as a discount and excluded from the sales price subject to tax. The sales tax is $800. (5% of $16,000).
Example 2: Vendor P sells a vacuum cleaner for $250.00 to a customer who will receive a rebate of $50 from the manufacturer after the sale is completed by mailing-in proof of purchase and the warranty registration card to the manufacturer. The sales tax is $12.50. (5% of $250.00).
Example 3: At the time of sale, Retailer Q offers customers a cash discount of $25.00, for which he is not reimbursed by any party, on purchases of dishwashers which usually sell for $400.00. The customer will also receive a rebate of $30.00 from the manufacturer of the dishwasher after the sale. The sales tax is $18.75 (5% of $375).
Date of Promulgation: 3/8/84
New Regulation Promulgated: 4/28/00