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  Sales and Use Tax
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      Discount Cards

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  When does sales tax apply when applying rebate amounts to discount cards?
  Question
  Q: If a retailer loads "cash back" amounts (sometimes referred to as "rebates"), store refunds for returned merchandise, and/or gift card values onto a customer's discount card so that a deduction for such amounts is taken from the total sales price of the customer's next purchase, do the sales and use taxes apply to the full sales price or the reduced sales price?
  Answer
 

A: A retailer sells discount cards to its customers. Customers purchasing such discount cards from the retailer receive certain benefits on future purchases from the retailer. Typical benefits include cash discounts on purchases and cash back amounts usually in the form of rebates or credits.

"Cash back," refunds and gift cards are all cash equivalents, which means that tax is computed on the full sales price before the cash equivalent is applied.

Example: A customer makes a purchase at a retail establishment and receives $4.00 "cash back" loaded on its discount card to use toward a future purchase. The customer purchases a $5.00 bottle of mouth wash. The customer pays the retailer with the $4.00 on the discount card and $1.00 cash to purchase the mouth wash. The sales and use taxes apply to the sales price of $5.00 and so the customer pays 32¢ sales tax on the transaction. (($1.00 + $4.00) x 6.35% = 32¢)

For further information see Policy Statement 2007(5), Sales Tax Treatment of Coupons, Scan Cards, Cash Equivalents, Promotional Items, and Rebates.

(Updated: 2015)

 

This answer is intended to provide general information concerning a frequently asked question about a current position, policy, or practice associated with the taxes administered by the Connecticut Department of Revenue Services.  It may include an informal interpretation of Connecticut tax law by the Department of Revenue Services (DRS).  However, it is not intended to serve as a legal ruling.

 
 
 
  
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