Tax Department Policy on Manufacturer's Discounts Received Using Store Loyalty Cards
From NYS sales tax guidance
This memorandum describes the procedures that sellers should follow to properly disclose to customers that certain discounts received through store loyalty cards are manufacturer's discounts.
Many businesses use store loyalty cards to offer their customers incentives to shop frequently at their stores. These incentives often include discounts that are activated by scanning the customer's loyalty card at the cash register.
When these loyalty card discounts are given and the discounted item is subject to sales tax, the amount subject to sales tax generally depends on whether the discount reflects a manufacturer's discount or a store discount. If the store is reimbursed for the amount of the discount by the manufacturer, distributor or other third party, it is a manufacturer's discount. If the store receives no reimbursement from a third party for the amount of the discount given, it is a store discount.
Generally, when a customer purchases an item subject to sales tax and receives a manufacturer's discount, the amount subject to sales tax is the full price of the item before subtracting the discount. For store discounts, however, the amount subject to sales tax is the price of the item after the discount is applied...
In the case of a manufacturer's discount, the store must adequately disclose to the customer, at or before the time of purchase, that the discount the customer is receiving is a manufacturer's discount. This is to ensure that the customer is aware that the full purchase price is subject to sales tax. If the seller fails to adequately disclose this information to the customer...the seller must collect sales tax from the customer on the reduced price of the item. However, in this case, when the seller files its sales tax return it must still remit sales tax on the full price of the item before the discount. That is, the seller itself will be required to pay the sales tax on the amount of the manufacturer's discount.
This memorandum describes the procedures that sellers should follow to properly disclose to customers that certain discounts received through store loyalty cards are manufacturer's discounts.
Many businesses use store loyalty cards to offer their customers incentives to shop frequently at their stores. These incentives often include discounts that are activated by scanning the customer's loyalty card at the cash register.
When these loyalty card discounts are given and the discounted item is subject to sales tax, the amount subject to sales tax generally depends on whether the discount reflects a manufacturer's discount or a store discount. If the store is reimbursed for the amount of the discount by the manufacturer, distributor or other third party, it is a manufacturer's discount. If the store receives no reimbursement from a third party for the amount of the discount given, it is a store discount.
Generally, when a customer purchases an item subject to sales tax and receives a manufacturer's discount, the amount subject to sales tax is the full price of the item before subtracting the discount. For store discounts, however, the amount subject to sales tax is the price of the item after the discount is applied...
In the case of a manufacturer's discount, the store must adequately disclose to the customer, at or before the time of purchase, that the discount the customer is receiving is a manufacturer's discount. This is to ensure that the customer is aware that the full purchase price is subject to sales tax. If the seller fails to adequately disclose this information to the customer...the seller must collect sales tax from the customer on the reduced price of the item. However, in this case, when the seller files its sales tax return it must still remit sales tax on the full price of the item before the discount. That is, the seller itself will be required to pay the sales tax on the amount of the manufacturer's discount.
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