96-153
Response
February 28, 1997
Request
Irene
Rees
Utah
State Tax Commission
210
N 1950 W
Salt
Lake City, UT 84134
Dear
Ms. Rees:
We
are requesting an advisory opinion from the Utah State Tax Commission with
respect to the sales tax issue discussed below.
We
would like to change one of our procedures on a going-forward basis with
respect to in-house coupons and how we account for them.
Current
Procedure
On
occasion, COMPANY issues coupons to
potential customers. These coupons have
a face amount which can be used toward payment for COMPANY merchandise. Our current procedure with these coupons is as follows:
A
customer selects merchandise to purchase.
The full selling price of the merchandise is entered into our system by
a sales person. Our system then
subtotals the prices of the merchandise and calculates sales tax on the
subtotal. A total price is then calculated,
which includes sales tax.
The
customer then pays for the merchandise through a cashier. The casher, for internal control purposes,
is a different person and position from the sales person. The cashier cannot make any changes to the
sales order, again for internal control reasons. The customer presents the in-store coupon to the cashier when
paying for the merchandise. The cashier
treats the coupon as a partial payment against the total price and requests
payment from the customer for the remaining balance. For example:
Selling
price of merchandise $100.00
Subtotal
(taxable) 100.00
Sales
Tax at 6.125% 6.13
Total
$106.13
Application
of coupon, at face value -50.00
Remaining
payment due from customer $56.13
Sales
tax actually remitted to the Utah State Tax Commission $6.13
We
recognize that the Utah sales tax law provides that the value of an in-house
coupon can be a reduction of the
selling price, after which sales tax is applied to the reduced amount. COMPANY
does not follow this procedure because of internal control difficulties
that would arise either from allowing salesmen to reduce the selling price of merchandise,
or from allowing cashiers to make changes to the sales order. If COMPANY
were to follow this procedure, the above example would change as
follows:
Selling
price of merchandise $100.00
Subtotal
before coupon applied 100.00
Application
of Coupon, at face value -50.00
Subtotal
(taxable) 50.00
Sales
Tax at 6.125% 3.06
Remaining
payment due from customer $53.06
Sales
tax that would be remitted to Utah State Tax Commission $3.06
As
mentioned, because of internal control reasons, we have to follow the first
procedure as described above, not the procedure allowed by the State Tax
Commission. Because we are not able to
follow the procedure of reducing the sales price before the sales tax is
applied, we are over collecting sales tax from our customers. They are paying sales tax based on the face
value of our in-house coupons, even though they are not required to according
to the law. Incidentally, in accordance
with the Utah sales tax laws, we have always remitted this over-collected amount
to the State Tax Commission.
Proposed
Procedure
In
order to not over collect sales tax from our customers and still maintain our
required internal control procedures, COMPANY
furnishings is requesting an advisory opinion on the following
procedure.
COMPANY proposes printing on the face of its
in-house coupons a statement saying that sales tax of a specific amount is
included in the face amount of the coupon.
For example, a coupon with a face value of $50.00 would have a clearly
marked statement that would say “Inclusive of $3.06 of sales tax.” (The $3.06 is sales tax on the $50.00 face
amount.) This would mean that the
coupon actually has a “net” face value toward merchandise of $46.94 ($50.00 -
$3.06).
The
coupon would still be entered into our system by the cashier at its $50.00 face
amount. Sales tax would be computed on
the full $100.00 selling price as in the first procedure above. The $3.06 of sales tax reduction would be an
adjustment made internally by COMPANY
in order to reduce the sales tax paid by the customer by the amount
listed on the coupon. Full disclosure
of the sales tax reduction is made to
the customer on the coupon.
The
result of this proposed procedure would be (1) COMPANY would still be able to maintain the
integrity of its internal control system, and (2) customers would not be
charged sales tax on an amount higher than legally required.
Please
consider this procedure and give us an advisory opinion.
If
you have any questions, you may call me at either #####, or if not available at
that number, at #####. If I am not
available at the second number, you may leave a message with the receptionist
or a voice mail at that number and I will return your call.
Thank
you for your consideration of this matter.
Sincerely,
NAME
Tax
Manager
November
13, 1996
Irene
Rees
Tax
Policy Analyst
Utah
State Tax Commission
210
N 1950 W
Salt
Lake City, Utah 84134
Dear
Irene:
Thank
you for the time you spent with us in our meeting on October 28. As we
discussed, please find enclosed the following items:
A sample coupon which includes the verbiage
we discussed regarding the face value of the coupon being inclusive of sales
tax that would otherwise be charged.
A sample sales order, written by the sales
person, which does not reflect any reduction for the coupon.
A sample cash receipt, which reflects that
the customer has presented the coupon to the cashier. The cashier has reported
the coupon as a payment on account of $50.00.
A delivery ticket, which the customer signs
upon receiving the merchandise. If a coupon was used by the customer, the
allocation of coupon value between reduction in taxable sales and reduction in
calculated sales tax is printed on the delivery ticket, as on the enclosed
sample delivery ticket.
As
we discussed in our meeting, we believe that we are accomplishing full
disclosure to our customers, without compromising our internal control
procedures. In order to present our complete proposal, we have revised the
following information, much of which was contained in our previous letter dated
September 19, 1996, to correlate with the items we discussed in our meeting.
Current
Procedure
A
customer selects merchandise to purchase. The full selling price of the
merchandise is entered into our system by a sales person. Our system then
subtotals the prices of the merchandise and calculates sales tax on the
subtotal. A total price is then calculated, which includes sales tax. A sales
order is then printed out, reflecting the above amounts and calculations. The
sales person is unable to enter customer payments or coupon discounts into the
system, for internal control purposes.
The
customer then pays for the merchandise through a cashier. Payment may be in the
form of cash, outside credit cards or in-house credit. The cashier, for
internal control purposes, is a different person and position from the sales
person. The cashier cannot make any changes to the sales order, again for
internal
control
reasons. The customer presents the in-store coupon to the cashier when paying
for the merchandise. The cashier treats the coupon as a partial payment against
the total price and requests payment from the customer for the remaining
balance. For example:
Selling price of
merchandise $200.00
Subtotal (taxable) 200.00
Sales Tax at 6.125% 12.25
Total $212.25
Application of Coupon,
at face value -50.00
Remaining payment due
from customer $162.25
Sales tax actually
remitted to Utah State Tax Commission $12.25
We recognize that the Utah sales tax law provides that the value of an
in-house coupon can be a reduction of the selling price, after which sales tax
is applied to the reduced amount. COMPANY does not follow this procedure
because of the internal control difficulties that would arise either from
allowing salesmen to reduce the selling price of merchandise, or from allowing
cashiers to make changes to the sales order. If COMPANY were to follow this procedure, the above
example would change as
Selling price of merchandise
$200.00
Subtotal before coupon applied 200.00
Application of Coupon, at face value -50.00
Subtotal (taxable) 150.00
Sales Tax at 6.125% 9. 19
Remaining payment due from customer $159.19
Sales tax that would
be remitted to Utah State Tax Commission $9.19
As mentioned, because of internal control reasons, we have to follow
the first procedure described above, not the procedure allowed by the State Tax
Commission. Because we are not able to follow the procedure Or reducing the
sales price before sales tax is applied, we are over collecting sales tax from
our customers. They are paying sales tax on the face value of our in-house
coupons, even though they are not required to according to the law.
Incidentally, in accordance with the Utah sales tax laws, we have always remitted
this over-collected amount to the State Tax Commission.
Proposed Procedure
In order to not over collect sales tax from our customers and still
maintain our required internal control procedures, COMPANY is requesting an advisory opinion on the
following procedure.
COMPANY proposes printing on
the face of its in-house coupons the statement which is on the enclosed sample
coupon. As we discussed, the coupon still would be entered into our system by
the cashier at its $50.00 face amount. Sales tax would be computed on the full
$200.00 selling price, as in the first procedure above. The sales tax reduction
would be an adjustment made internally by COMPANY in order to reduce the sales tax paid by the customer by the
amount listed on the coupon. Full disclosure of the sales tax reduction is made
to the customer both on the coupon and on the delivery ticket. Although the
reduction is not reflected on the original order from, payment with a coupon
also is not reflected on the original order form.
The adjustment, calculated internally by COMPANY, would be easily
auditable by the tax commission. A listing of all coupon-reduced sales would be
kept on file, along with reference numbers to the cash receipts and delivery
tickets reflecting the reduction in sales tax.
The result of this proposed procedure would be (1) COMPANY would still be able to maintain the
integrity of its internal control system, (2) customers would not be charged
sales tax on an amount higher than legally required, and (3) full disclosure is
made to the customer on the coupon and on the final delivery ticket.
Please consider this procedure, which we have modified based on the
items discussed in our meeting, and give us an advisory opinion.
If you have any questions, you may call me at either #####, or if not
available at that number, at #####. If I am not available at the second number,
you may leave a message with the receptionist or a voice mail at that number
and I will return your call.
Thank you for your consideration of this matter.
Sincerely,
NAME
Tax Manager
NAME
ADDRESS
CITY STATE ZIP
Advisory Opinion - Calculating sales tax on in-store
coupons
Dear NAME,
We
have received your request for advice concerning the calculation of sales tax on
purchases paid in part by unreimbursed coupons. As you are aware, a coupon for which no reimbursement is received
is considered a discount, and the sales tax is to be calculated on the net
purchase price after deducting the coupon.
We do not agree, however, that the method that you suggest is an
adequate alternative method of calculation.
Sales
tax must be charged on the total sales price.
In the sample invoice that accompanied your letter, the total sales
price is identified as $200.00. The
$50.00 certificate is not applied to discount the sales price. Instead, it is applied as “partial payment
against the total price.” The total sales price remains $200.00, and that is
the taxable amount.
The
sample certificate contains a notation stating “inclusive of Sale Tax. Taxable sale reduced $47.11; sales tax not
charged, $2.89; Total Value $50.00.” If
this certificate were treated as a $50.00 discount, the total sales price would
be $150.00. The tax due on $150.00 is
$9.18. Under the scheme outlined on
your sample Delivery Ticket, the tax
due is $9.36 ($12.25 - $2.89). Not only
would you be collecting more tax than is due on this sale if the discount
applied, but all of your documents indicate that the customer paid $12.25 in
sales tax. The $50.00 certificate, when
used as proposed, will be considered as a partial payment against the total
purchase price shown on your sales documents, and the full amount of tax
charged must be remitted.
If you have other proposals that you would
like us to consider, please let us know.
For
the Commission,
Joe
B. Pacheco,
Commissioner