Tax Type
Retail Sales and Use Tax
Description
Discounts offered by restaurants
Topic
Taxability of Persons and Transactions
Date Issued
06-29-1988
June 29, 1988
Re: Request for Ruling/Sales and Use Tax
Retailer Coupons
Dear*****************
This will reply to your letter dated February 17, 1988 regarding the correct application of the sales and use tax to discounts offered by restaurants.
Many restaurants have special promotions whereby they will place coupons in newspapers, issue cards to regular customers or participate in discount programs offering a reduction in the price of meals. Since these discounts are issued by the restaurant and not reimbursed by any outside organization, it is your contention that the sales tax should be charged only on the amount of the bill after the discount has been computed.
You are correct in your interpretation or the application or the sales tax to such discounts. Virginia Regulation 630-10-27.2(B) (copy attached) states that the value of a retailer's coupon is not included in the sales price of the advertised merchandise. Provided the retailer absorbs the loss resulting from the discount and will not be reimbursed by any organization, the coupon is a true reduction in the selling price and has no value to the retailer. The sales price of an item for which a retailer's coupon 18 presented is the price listed for the item less the amount of the discount. Therefore, the tax should be computed on the amount of the bill after the discount has been applied.
Although the department's policy on retailer's coupons is discussed in the above referenced regulation, the policy as it relates to restaurants may need further clarification. I will remain mindful of your suggestion for information on this issue when the department undertakes its next revision of the Retail Sales and Use Tax Regulations. I will also contact the various restaurant associations so that they may communicate this policy to their memberships.
Thank you for your input on this matter. I appreciate your apprising me of your concerns.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner