Information for businesses

from the

Iowa Sales Tax on Coupons, Discounts, & Rebates

Tax Isn’t Charged on the Amount of a Coupon is It?

It depends on the type of coupon.

What do you Mean by the Type of Coupon?

Generally, two types of coupons are used:

Manufacturer’s coupons

Retailer’s coupons

What’s a Manufacturer’s Coupon

Manufacturer’s coupons are issued by the producer of a product.

They cannot be used to reduce the taxable amount of the product.

What is a Retailer’s Coupon?

Retailer’s coupons are issued by the retailer selling a product.

They can be used to reduce the taxable amount of the product.

Why are the Two Types of Coupons Treated Differently?

The taxable amount of the product is the amount for which the retailer is selling the product.

The amount for which the retailer is

selling the product varies depending upon the type of coupon.

What is the Taxable Amount When a Manufacturer’s Coupon is Used?

When a manufacturer’s coupon is used by a customer, the retailer is reimbursed by the manufacturer for the amount of the coupon.

Therefore, the amount for which the retailer is selling the product, and the taxable amount, includes the amount of the coupon.

The retailer receives the selling amount from two different sources – part from the customer – part from the manufacturer.

Example of a Manufacturer’s Coupon

The manufacturer of a soft drink issues a 50¢ off coupon which can be redeemed at any store which sells the product.

A bottle of the soft drink costs $1.50. A customer pays $1.00 in

cash, plus the 50¢ coupon.

The store is reimbursed 50¢ for the coupon by the manufacturer.

Tax is due on $1.50, because the amount for which the retailer is selling the product is $1.50 – payment is made to the retailer from two different sources.

What is the Taxable Amount When a Retailer’s Coupon is Used?

When a retailer’s coupon is used by a customer, the retailer is not reimbursed for the amount of the coupon.

Therefore, the amount for which the retailer is selling the product, and the taxable amount, does not include the amount of the coupon.

The retailer receives the selling amount only from the customer and absorbs the cost of the coupon.

Example of a Retailer’s Coupon

A local restaurant issues a coupon that can be redeemed for $2.00 off a meal purchased at the restaurant.

A customer orders a meal normally costing $7.50 and pays $5.50

in cash, plus the $2.00 coupon.

The restaurant absorbs the cost of the $2.00 coupon and is not reimbursed by anyone.

Tax is due on only $5.50, because the amount for which the

retailer is selling the product is just $5.50.

What About Discounts?

The word "discount" means "to buy at a reduction."

Iowa sales tax applies to the reduced price paid by the

customer.

Example of a Discount

The price of a sofa at John’s Furniture is usually $500.

The store has a sale and reduces the price to

$450.

Customers who buy the sofa at the discounted price will pay Iowa sales tax on $450.

How About Rebates?

A rebate is a return of part of the amount paid for a product.

Rebates do not reduce the amount for which the retailer is selling the product, even if the rebate is used by the seller to offset part of the selling price or is used by the purchaser as a down payment.

Iowa sales tax applies to the amount paid by the purchaser to the seller. That amount cannot be reduced by the amount of the rebate before sales tax is applied.

Example of a Rebate

An appliance manufacturer offers a rebate of $100 on the purchase of a new refrigerator.

Bill’s Appliance sells the refrigerator for $900. Customers who purchase the refrigerator will

pay Bill’s Appliance $900. Sales tax must be charged on the $900. The purchaser will then apply directly to the

manufacturer for the $100 rebate.

Questions?

For more information see Iowa Sales Tax on Discounts, Rebates, and Coupons.

Call us: 8 a.m. - 4:15 p.m. CT 515-281-3114 or

1-800-367-3388 (Iowa, Omaha, Rock Island, Moline)

E-mail us at idr@iowa.gov