Sales Tax on Coupon Buys? Go Figure!

Imagine that you go to the supermarket planning an amazing coupon trip where you’ll purchase $80 worth of groceries for $20. As the cashier scans each manufacturer coupon, your total at the register dips lower and lower. But one item on the register’s screen doesn’t change a bit. What is it? Your sales tax. As the dollar amount drops, shouldn’t the tax total go down, too?

That’s what this reader thinks:

“Here’s something I suspect most coupon-snippers don’t know. Recent visits to a store involved the redemption of several manufacturer coupons at the checkout. A review of the sales receipt made me suspicious of the amount of sales tax levied. Well, come to find out, the sales tax is calculated based on the cost of the items purchased before coupons.”

While this is a non-issue in parts of the country where sales tax is not levied on food purchases, for the rest of us it does seem puzzling. If I cut 75 percent off my grocery bill with coupons, shouldn’t I pay tax only on the dollar amount that I actually owe?

Actually, no. The answer may surprise you – or it may not. If you’re a longtime reader of my column, the slogan “Coupons are cash” may sound familiar. I always think of my coupons in the same way I regard a handful of dollar bills – as money I will spend to buy the items that I need.

A manufacturer coupon can be considered a form of currency. To the store, there is no difference whether you pay the first $60 of your $80 grocery bill with coupons or with cash. You still purchased $80 worth of groceries and that $80 is what your sales tax is figured on. The same is true for the state. It doesn’t care how you paid for your groceries (with coupons or with cash), it’s still entitled to the full sales tax on an $80 sale.

I receive a fair amount of mail from readers who are incredibly upset about this, but I tend to look at the bigger picture. If I just cut $60 off my grocery bill, I’m not going to sweat the sales tax too much. On rare occasions, I’ve gotten my grocery bill down to nothing except for the tax! That’s kind of fun -– although I’ll never be able to do a big TV shopping trip like one I saw recently in which a colleague of mine paid just a quarter for more than $100 worth of groceries! (Where I live, the tax alone would push things over the $5 mark.)

Let’s talk about the times that coupon usage actually does reduce the tax: when you pay with a store coupon versus a manufacturer coupon. What’s the difference?

A store coupon functions differently at the register than a manufacturer coupon does. While we think of a manufacturer coupon as cash, a store coupon acts like an instant sale. It reduces the actual selling price of the item. Remember, store coupons don’t go anywhere for redemption – they simply reduce the price by a set amount. Once a store coupon reduces an item’s price, that new sale price is what the sales tax is typically figured on.

A favorite example? A national department store offered a $5 coupon good on any women’s denim item, a store coupon good only at that store. I love clothing coupons as much as I do grocery coupons, so I printed two and held onto them.

About a week later, I was browsing the clearance area at the store and noticed a rack of women’s blue jeans with a 75 percent off sign. Each pair? Just $4.98.

Remember that nice $5 store coupon? I grabbed a pair for myself and another for my teenage daughter. When the two coupons scanned at the register, the jeans were free. And the tax? The receipt shows $0.00!