Sales Tax with Coupons: What You Need to Know

Does your company have coupons or discounts for products? Be careful of what your sales tax calculations might be charging your customers when it comes to discounted sales. You might be in for trouble, like Target. Target is accused of overcharging customers when coupons were used in a new class action lawsuit filed this March. Walmart’s also been the target of a similar lawsuit.

Calculating sales tax with coupons can be very confusing. Do you use the regularly charged retail price? Or do you calculate sales tax using the discounted price? What kind of discount is it?

Different states have different laws when it comes to discounted prices and they can even vary depending on how the discount resulted. California, for instance, stipulates different rules for manufacturer’s coupons versus discount club memberships. So what should your business do?

How to Handle Discounted Sales with Sales Tax

Since every state is different and the rules vary depending on the type of discount, getting sales tax with discounts right comes down to knowing your business well.

  1. What kinds of discounts and coupons does your business accept? Make a list of all the different types of discounts your business offers and update it if anything changes.
  2. What are the applicable laws for your business’ discounts? Be sure you understand what rules apply in states where your business has nexus when it comes to coupons.
  3. Test for compliance. Look at a handful of transactions with coupons or discounts applied and see if the laws were closely followed for compliance. Does your company comply well with sales tax discount laws?
  4. Make a compliance plan. Get to the root of the compliance problem. Is it your shopping cart, invoicing system, POS system, or even
    a salesperson? Educate those who make sales on the different requirements for sales tax with your most popular discount types and make any changes to your software systems needed to comply.
  5. Verify before filing. Before you send off sales tax filings to states, be sure to audit discounted sales for noncompliance so you can correct sales tax errors before sending it in—and potentially getting audited.

Checking for discounted sales tax compliance can save you headaches of sales tax audits down the road. Not sure you can do this? We can help.

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