Coupons Are Taxable - Why Do We Have To Pay Sales Tax on Them? - Blog - Saving Advice Articles
"How to have your cake and eat it: Lend it out at interest." - Unknown

Coupons Are Taxable – Why Do We Have To Pay Sales Tax on Them?

By , April 20th, 2008 | 18 Comments »

coupons are taxable

It seems everything is taxable — even coupons! I never questioned the small print on the coupons I use, at least not the part about the customer paying sales tax. (I don’t understand why a manufacturer can say a coupon shouldn’t be doubled when it’s the retailer that makes a doubling offer, but that’s not my point here.) I never questioned the sales tax, but I know others have.

Recently, when we were about to pay for new car tires, I overheard the customer in front of us questioning the sales tax on his bill: “Why should I pay sales tax on this $40-off coupon? You don’t charge sales tax when the price is lower because of a store sale. Using a coupon is the same thing — I still pay $40 less.” He made a valid point: Why am I paying sales tax on money I’m not paying for goods or services?

If a manufacturer prices a car at $21,499 and I bargain with the dealer so that I’m paying only $17,399, I would certainly question the bill if I saw I was taxed on $21,499. Sometimes manufacturers suggest ridiculously inflated retail prices that I would never pay; the idea of being charged sales tax on those prices is absurd.

For lower priced items, the difference in tax seems minor, even if I would scoff at the manufacturer’s inflated price. If I went to a toy store and paid a $15.00 sale price for a toy that’s usually $20.00, I might not notice if I were charged thirty cents in tax on the extra $5.00. If I did notice, I would complain about it if I had the time and was in a quarrelsome mood. But until I overheard that tire customer, I never questioned the sales tax I paid on coupons. In fact, I have done the opposite — I once blurted out, “Don’t I owe sales tax?” when coupons and sales brought my total bill to $0.00.

Once that tire customer planted the idea in my head, I had to find out why we do have to pay sales tax on coupons, but not advertised specials. The tire clerk had just responded, “The law says we have to.” That explanation wasn’t enough to satisfy my curiosity, so I turned to Goodsearch and found a reasonable explanation from the state of New Jersey: “When these [manufacturers’] coupons are used, sales tax is charged on the full regular price because that is the amount which the vendor ultimately receives — in part from the customer, the balance from the manufacturer.” The same site explained that sales tax should not be charged for vendor coupons because the vendor never receives that extra money. That made sense to me, but assuming the laws are the same in my state (an answer I couldn’t find online), the tire customer could have made another argument against paying sales tax: the coupon he used had been a vendor coupon.

Retailers seem to be as confused by the law as consumers are. Some retailers never charge sales tax on discounts, whether they are in-store sales or manufacturer’s coupons. Some charge sales tax on all coupons, even those they have issued themselves. I have learned to expect to be charged sales tax on coupons and am pleasantly surprised when I am not — I consider it a gift from the retailer. Either way, I see coupons as a blessing, so I have decided not to complain that I’m really only getting 94% of their value after I pay Pennsylvania’s 6% sales tax.

Image courtesy of BigFreaky

Get Your FREE Book Now


Enter your name and email address to get your FREE copy of "Guide to Shopping at Costco."

We won't send you spam. Unsubscribe at any time. Powered by ConvertKit
What did you think about this article?
1 Star2 Stars3 Stars4 Stars5 Stars (3 votes, average: 5.00 out of 5)


  • Hilary says:

    Ugh, I just paid sales tax on a cell phone that was literally free with my contract renewal. The tax ended up being $11, which isn’t a big deal for a new phone, but since it was an in-store discount, it sounds like it was bogus. Bummer.

  • Tax Man says:

    In general, you pay sales tax on what the retailer charges for the item (e.g. $10 sale x 10% tax = $1 sales tax). If the retailer, reduces the price, the tax is also reduced (e.g. $2 discount so now we have an $8 sale x 10% tax = $0.80 sales tax). However, with coupons from outside parties (not coupons the retailer creates) the retailer still receives full price after reimbursement by the vendor for the coupon (e.g. $10 sale x 10% tax = $1 sales tax; $9 paid by customer, $2 paid by mfg.). That is why the customer pays sales tax, even if the item is free. The retailer is still receiving full value for the item and that is what the tax is based on. In an ideal world, the mfg. would pay the sales tax on the coupon, but when a retailer submits coupons to the mfg., they could be for sales that occurred in all 50 states and neither the retailer nor the mfg. would know all the correct tax rates or be able to report the correct tax back to the correct taxing authority. So taxis collected from the customer at the time of sale. With counties, cities, and special districts, there are over 7,000 different authorities who collect sales tax.

  • Tim says:

    Using that logic, it would seems that someone should be paying tax on the handling fee that retailers receive for each coupon they remit, which is in addition to the face value of the coupon. To me, it’s all just another way to part citizens and their money (and a clever one as most people do not notice–unless the item would otherwise have been free).

  • steve says:

    Your wrong in saying a that 6% your paying 94% of the value. $100 is not $94. To be exact your only pay just under. DOIN THE MATH

    • Josh says:

      Your wrong in saying a that 6% your paying 94% of the value. $100 is not $94. To be exact your only pay just under. DOIN THE MATH

      It’s funny that you can’t communicate at an 8th grade level but you think you’re (see that – “you’re” – not “your”) qualified to give a math lesson. It’s really pretty simple (although obviously too complicated for you); you have a coupon worth one dollar, but it costs you six cents in tax. Ergo, you only get 94% of the value of the coupon. If this is too complicated for you, any non-retarded 10 year-old should be able to explain it to you.

      • Sean says:

        While steve’s comment indicates a lack of education, your comment shows a lack of civility. Probably not, but for all we know steve may be a 9 year old child. He was wrong. Was the contempt you voiced right?

        • Kevin says:

          Josh, I totally agree with Sean. Using that form of degrading reference is bringing you down too a very low level. Sometimes people are looking for the right thing to say but it just doesn’t come out right. You don’t want to be another Ann Coulter do you?

        • RexLuscat says:

          And he may have been the Vice President of the United States.

          “Three letter word: J-O-B-S!”

      • Captain K says:

        I have to say that Steve is right. A coupon’s value is not reduced just because it doesn’t reduce the sales tax. Example:


        Without coupon:

        $10.00 Item
        0.60 Tax on $10
        10.60 Total


        With $1-off coupon:

        $10.00 Item
        1.00 Coupon
        9.00 Sub-total
        0.60 Tax on $10
        9.60 Total

        Now, how much did you save with that coupon?

  • Anne Marie says:

    I would have to say that my biggest problem with having to pay tax is that the store gets the value of the coupon plus a handling fee (on my 50 cent coupon it was 8 cents plus the value of the coupon) so why doesn’t the tax come out of that???

    • Rich says:

      Manufacturer Coupons for Grocery Stores can work differently in each state in reference to Tax. Most of the states follow the ‘rune’ that Manufacturer’s Coupons are treated as Cash and are referred to as a tender and not a discount. Therefore the tax on an item is charged at the Retail selling price of the item and not the ‘discounted’ price. Retail store discounts are just that and discount the price of the item to a lower value. The customer pays tax on the lower value.

      As for the Handling Fee, this is not something that the Retailer typically receives. This is the fee that the coupon processing company keeps and is their only source of income when processing paper and digital coupons for payment. I know this because I work for one of the largest coupon processors in the country.

  • cptacek says:

    Totally depends on the state. If you have a problem with it in your state, hit up your state representatives. They might be more receptive to changing the sales tax laws than you think! In fact, they might not even know what they are at the moment…

  • ncooty says:

    This extra charge is a small portion of the price we pay (sometimes literally) for poorly educated fellow citizens.

    One other point that’s not mentioned here: the superfluous “tax” charge we pay on those seller-issued coupons is likely never paid to the state as tax. It’s usually kept by the seller as revenue, because the accountants are smarter (or more conniving) than most customers are. Taxes are calculated and paid in aggregate, and because the accountants don’t count the full product cost as sales revenue, they don’t pay taxes on it.

    As with the article’s author, I just try just to consider the value I’ll actually get from the coupon, not what I SHOULD get. I’m long past the point of trying to argue with imbeciles who don’t understand math, taxes, logic, etc. and don’t have the authority to override the cash register anyway.

  • Josh says:

    …because the accountants don’t count the full product cost as sales revenue, they don’t pay taxes on it.

    Of course accountants don’t count the product cost as sales revenue, because, generally speaking, the point of having a business is to have sales revenue that exceeds the cost of goods sold. If not, a business won’t last very long!

    You seem to be implying that the accountants leave out the revenue received from manufacturers due to coupons – you’re incorrect. Or I should say, any accountant that wishes to keep himself employed and free from legal trouble would not do such a thing because that would be tax fraud. It wouldn’t take long at all for an independent auditor (or worse, an IRS auditor) to find that.

  • Stephanie says:

    I’ve just started collecting printed and cut-out coupons a few days ago. It’s a good thing I stumbled upon this post so now I won’t be surprised if the supermarket charges me for tax when I use these coupons. This is all new to me so thanks a lot for giving a very simple explanation!

  • L. F. says:

    I received a coupon for a free item from a manufacturer due to the fact that I previously purchased an item that did not operate properly. However, when I went to the store to get the item, I was charged sales tax. It was a surprise to me as I have never paid tax on free items before. The cashier usually rings up the item then scans the coupon, which subtracts the exact amount of the item, leaving a $0 balance. Since the balance is $0, then the tax should be $0 as anything multiplied by $0 is always $0. It only happened to me in one store, Walgreen’s. I asked the cashier if it has always been like this and she said yes. I said well I’ve never had to pay taxes on free items before at any other store. Free should be free. Well, I will never go fo another Walgreen’s to redeem a free item coupon again. It’s just fhe principle of the matter especially since my original purchase was defective.

  • Susan says:

    I just bought a box of motor oil on sale at Costco. Original price is $35.99 but after $9.00 coupon, it’s $26.99. It’s in the Costco coupon book and says “instant savings”. Thought that was odd so here I am online and reading all about it.

    I don’t know if it’s manufacturer’s or store coupon. Regardless, I paid sales tax on $35.99 not $26.99. Sales tax is 9.00% in my county.

  • Captain K says:

    I just redeemed a $5 off manufacturer’s coupon for a product. I was charged sales tax on the full original amount. Not understanding why, I started looking for answers, and my search led to a couple places (including here).

    I found that, at least in Michigan (where I’m from), retailers are required to pay sales tax for the gross revenue they receive for an item. If the coupon presented is a store coupon, the retailer is agreeing to receive a lower price, and it’s the reduced price that should be taxed. If the coupon presented is a manufacturer’s coupon, the retailer will still receive the full revenue for the item; partly from you, partly from the manufacturer. The retailer must still collect sales tax on the full amount.

    I suspect this is the case in most states. Here’s a link to a short document with good examples.


Leave a Reply


Sign up for the "Saving Advisor" newsletter (Weekly)
Google Plus

Subscribe by email:

Related Articles

Previous Years Articles

Today, last year...

Copyright © 2017 All Rights Reserved.