Coupons, Discounts and Rebates (Publication 113)
Rebates and Incentive Programs

The following definitions apply only to rebates and incentives offered to you by third parties:

• "Discount" is a reduction in the purchase price your customer is required to pay in order to receive the merchandise. Discounts are the result of consideration promised to, or received by you, from a third party.
• "Retailer's vendor" is a person from whom you purchase resale inventory.
• Beginning October 1, 2007, a "third party" is defined as a person other than the retailer or the retailer's customer, such as a manufacturer or retailer's vendor.

It is presumed that any third-party consideration received by you related to promotions for sales of specified products is subject to tax until the contrary is established. You are required to disclose to your customer the amount of any third-party rebate revenue upon which sales or use tax is collected, including the amount of any taxable discounts, rebates, or incentives offered or paid to you by third parties.

Please note: You may itemize this amount on the customer's receipt, sales invoice, or other proof of sale. When applicable, you may also post, in a location visible to your customer, or in advertisements, flyers, or brochures sent to customers, a notice to the effect that "tax" will be added to the sales price of all items and that the amount on which tax is calculated includes the amount of any taxable discounts or rebates.

Rebates and incentives issued directly to you as a retailer

Rebates and incentives issued directly to you by manufacturers or other third parties result in additional taxable revenue when certain conditions are satisfied. These rebate and incentive programs are also known as "Buy-Down Rebates," "Voluntary Price Reductions," "Promotions," "Flex" (Flex Extensions), "Coupon Redemptions," "Scanbacks," "Instant Rebates," or by a similar name.

Rebates issued to your customers

Rebate checks issued by manufacturers directly to your customers following their purchase of the manufacturer's products are not part of your total taxable sales. Your customers are generally required to submit a rebate application form along with any required documentation, such as a sales receipt, to the manufacturer or manufacturer's representative directly or through you. In this situation, your customer pays you the full selling price and receives a subsequent rebate directly from the manufacturer.

Three conditions must exist for discounts or rebate programs to be taxable

Payments received from a third party for discounts or rebate programs are part of your total taxable sales when all three of the following conditions exist:

1. The third party requires you to reduce the sales price of particular products in order to receive payment from the third party.
2. Conditions for receipt of payment must be certain, not dependent on other factors outside your control. (The term "certain" reflects conditions in the agreement that you have control over. For example, you will receive payment from the third party if you place product signs in your store). An example of a factor "outside your control," would be that you receive payment only if you meet a sales quota for the discounted products within a specific time period.
3. The payment must be for a like amount on a transaction-by-transaction basis (payment must be tied to the specific sale of the particular product in the agreement). The third party reimburses you for the specified price reduction in the agreement.