Sales Tax on Purchase of $0

[Emeritus]

First to your other post... I agree... Excise is a perfectly good word...


As to this post... again, not on subject... and also did not have enough quoted... I highlighted that below... this is only stating that you should NOT collect sales tax when a gift certificate or coupon book is bought... but you should follow the rules when the actual transaction is done... on the NET amount... so a sale of $0.00 is taxed at $0.00....


Gift Certificates and Passbooks
[FONT=ITC Century Std Book,ITC Century Std Book][FONT=ITC Century Std Book,ITC Century Std Book]Sales of intangibles such as gift certificates and coupon passbooks are not subject to sales tax. Instead, retailers should collect tax when the certificate or coupon is redeemed for the purchase of taxable merchandise or services. The tax is based on the item’s actual retail selling price less any cash discount given at the time of the sale (e.g., a deduction for a coupon). Of course, if the gift certificate is for a nontaxable service such as a haircut, manicure or facial, no sales tax is due when the certificate is redeemed. Taxable services are listed in "Taxable Services" (Tax Publication 96-259.)
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not what it says

the retail selling price is what the goods (item) are normally sold for
Which is normally what the coupon is sold for . Other wise I could sell a coupon for a $2000 refrigerator for $2000 and the purchaser could walk in the store and exchange it for a refrigerator for free and pay no tax. The rule says to collect the tax on the "items" retail selling price. But no sale is taking place at the redemption, the sale already took place when the coupon was sold. The only discount is at the time of the sale which in this example is the sale of the coupon which is exchanged for the item.

I agree that if I sell the $2000 coupon for $1800 tax would be collected on $1800 i.e. a cash discount on the sale of the coupon.

 

[SunsetSail]

not what it says

the retail selling price is what the goods (item) are normally sold for
Which is normally what the coupon is sold for . Other wise I could sell a coupon for a $2000 refrigerator for $2000 and the purchaser could walk in the store and exchange it for a refrigerator for free and pay no tax. The rule says to collect the tax on the "items" retail selling price. But no sale is taking place at the redemption, the sale already took place when the coupon was sold. The only discount is at the time of the sale which in this example is the sale of the coupon which is exchanged for the item.

I agree that if I sell the $2000 coupon for $1800 tax would be collected on $1800 i.e. a cash discount on the sale of the coupon.

"sales price" is a term of art within Texas sales and use tax law. It is defined simply as the total amount for which a taxable item is sold. Its definition has nothing to do with fair market value (although in theory items sold at arms length will be made at FMV). FMV may come into play if the state is attempting to come up with a value of consideration when a transaction is not at arms length.

The key point in your analysis is 'sell' a coupon for a frig. In your example, the 'coupon' is treated as a gift cert or cash equivalent. However, the current set of facts is different, the most likely outcome is that the coupon has no cash value and is treated as a cash discount at the register. A more accurate analogy would be that the matches are replacements and the manufacturer is performing under an implied warranty in which case the manufacturer is the consumer of the matches for use tax purposes.

The transaction also is technically outside the imposition of tax because it doesn't meet the basic requirement of a sale or exchange of tangible personal property for valuable consideration. The test for valuable consideration fails looking at the buyer and the seller. This would mean the tax law should be read in favor of the taxpayer and against the taxing authority when ambiguity arises.

 

[Emeritus]

"sales price" is a term of art within Texas sales and use tax law. It is defined simply as the total amount for which a taxable item is sold. Its definition has nothing to do with fair market value (although in theory items sold at arms length will be made at FMV). FMV may come into play if the state is attempting to come up with a value of consideration when a transaction is not at arms length.

The key point in your analysis is 'sell' a coupon for a frig. In your example, the 'coupon' is treated as a gift cert or cash equivalent. However, the current set of facts is different, the most likely outcome is that the coupon has no cash value and is treated as a cash discount at the register. A more accurate analogy would be that the matches are replacements and the manufacturer is performing under an implied warranty in which case the manufacturer is the consumer of the matches for use tax purposes.

The transaction also is technically outside the imposition of tax because it doesn't meet the basic requirement of a sale or exchange of tangible personal property for valuable consideration. The test for valuable consideration fails looking at the buyer and the seller. This would mean the tax law should be read in favor of the taxpayer and against the taxing authority when ambiguity arises.

The taxable item and event is the purchase of a "right to redeem for a refrigerator". The tax is collected when the coupon is redeemed, which completes the transaction.
On the matches, IIRC they were compensation for a service i.e. a quality control complaint.

I do agree that the exchange of a new for a defective item on which tax has been paid is a non taxable event.

 

[mickeyd]

Let the water boarding begin!!

Matches do not work well with water boarding. I've tried it.

 

[Texas Proud]

not what it says

the retail selling price is what the goods (item) are normally sold for
Which is normally what the coupon is sold for . Other wise I could sell a coupon for a $2000 refrigerator for $2000 and the purchaser could walk in the store and exchange it for a refrigerator for free and pay no tax. The rule says to collect the tax on the "items" retail selling price. But no sale is taking place at the redemption, the sale already took place when the coupon was sold. The only discount is at the time of the sale which in this example is the sale of the coupon which is exchanged for the item.

I agree that if I sell the $2000 coupon for $1800 tax would be collected on $1800 i.e. a cash discount on the sale of the coupon.

I think the analogy is still wrong... you are not selling a coupon, but selling a gift certificate. A coupon is something with little or no cash value that reduces the price paid. A gift certificate has the value (in your example $2,000) that is used instead of cash to pay for that item.

In the example of the OP, he received a coupon without paying any money (or providing services so we don't go down that avenue anymore) and redeemed this coupon for a box of matches. There was not exchange of money for the coupon, nor did he pay the store for the matches.

In your example, the person paid $2000 for a $2000 gift certificate. It now has value. He goes to the store and buys the $2000 refrig and the store calculates tax on the sale of the refig and then asks "how are you going to pay for this?" He pulls out his gift card. Now, IF he had a coupon for buying any one item in the store at 50% off, he presents the coupon, the store applies this coupon to the $2000 refrig, reducing the price to $1,000 and calcualtes tax on that amount. Then asks.. "how are you going to pay for this?" He pulls out his gift certificate and they take out the $1,082.50 that the time costs and he now has money left over. (assume tax in a full tax area... it could be less if not bought in a city or other taxing area)....


So it still is a fact that IN TEXAS, you would not have to pay any sales tax on the transaction presented by the OP...

 

[Emeritus]

In your example, the person paid $2000 for a $2000 gift certificate. It now has value. He goes to the store and buys the $2000 refrig and the store calculates tax on the sale of the refig and then asks "how are you going to pay for this?" He pulls out his gift card. Now, IF he had a coupon for buying any one item in the store at 50% off, he presents the coupon, the store applies this coupon to the $2000 refrig, reducing the price to $1,000 and calcualtes tax on that amount. Then asks.. "how are you going to pay for this?" He pulls out his gift certificate and they take out the $1,082.50 that the time costs and he now has money left over. (assume tax in a full tax area... it could be less if not bought in a city or other taxing area)....


So it still is a fact that IN TEXAS, you would not have to pay any sales tax on the transaction presented by the OP...

forget the matches for the moment. Lets stick to the refrigerator

You buy a right .. I don't care how you describe that right but it is a right to a refrigerator. Buying a right to a refrigerator is a taxable sale. I don't care what the paper is called. THe purchase of the right is the taxable transaction

he doesn't go to the store and BUY a refrigerator he redeems the coupon he already bought, which completes the sale

The transaction is completed when the paper is redeemed for the item and at that point tax on the value PAID for the paper is collected.

That is what the document says.

 

[Texas Proud]

forget the matches for the moment. Lets stick to the refrigerator

You buy a right .. I don't care how you describe that right but it is a right to a refrigerator. Buying a right to a refrigerator is a taxable sale. I don't care what the paper is called. THe purchase of the right is the taxable transaction

he doesn't go to the store and BUY a refrigerator he redeems the coupon he already bought, which completes the sale

The transaction is completed when the paper is redeemed for the item and at that point tax on the value PAID for the paper is collected.

That is what the document says.

Ok, lets stick with the fridge... which by the way is not about the OP...

The buying of the 'right' as you say is not what is conteplated on what you provided, nor on what I provided.... what that was about is buying a 'coupon book' or a 'gift certificate'.. so you have now narrowed it down to buying the right to a fridge... but if I buy a 'gift certificate' for you to buy a fridge, there is no sale... you do not have to go and buy (or pick up or take home... have to be more legal sounding with you) that fridge... you can just let it sit in the store forever and then no taxable transaction has taken place... I did not pay a sales tax on that 'right' to buy the fridge and the store does not have to report it as a sale.

if I buy one of those books that have hundreds of coupons in them... I do not pay a sales tax... and if I use a buy one get one free coupon, I only pay take on the 'one' that I pay money... the other is 'free' and I also get 'free' sales tax...

Again, I am talking about Texas... and any example you might give will not change the fact that I do NOT have to pay a sales tax on any of them.... only on the net sales price...



Now... IF I actually bought a fridge for you, ie., model number, make color etc all picked out... and then handed you the paper for you to pick it up.. then yes, there is a taxable transaction... I had completed the sale of the fridge... but that is not what you had put down. If you want to change to these set of facts, then by all means do... but your previous stated case was not this....