Pennsylvania High Court Rules on Application of Coupons in Sales Tax Calculations

The Supreme Court of Pennsylvania ruled in favor of the state in a case brought by a customer over a denied refund of overpaid sales tax on orders where coupons were used. The customer was charged sales tax on the original price of the transaction, before the transaction total was reduced by coupons, and was denied a refund claim by the Pennsylvania Department of Revenue Board of Appeals. The customer appealed, and the Commonwealth Court ruled in favor of the customer.

The arguments from both parties were based on the language of the state laws that define what coupons can be used to reduce the sales price. The Department of Revenue argues that the state code requires “both the item and the coupon are described on the invoice or cash register tape” for a coupon to reduce the price, and therefore the tax, on the item. The customer argued that, in cases where only one item was shown on the receipt, the state’s requirement that the coupon and the items to which it applied be described on the receipt were fulfilled by the coupon being separately stated, even though the specific item the coupon applied to was not described.

The Supreme Court ruled in favor of the Department of Revenue, further clarifying that “Without a description of the coupons, it is impossible to determine whether any of the coupons were of the type that [the Code] authorizes to establish a new purchase price.” The state’s code allows coupons to lower the purchase price if they are “on-the-spot cash discounts, employee discounts, volume discounts, store discounts such as “buy one, get one free,” wholesaler’s or trade discounts, rebates and store or manufacturer’s coupons.” The court also determined that the code contained two requirements: the coupon must be separately stated, and the coupon must be described. Because the coupon in this case was separately stated, but only described as a “coupon”, it did not fulfill the requirements.

What each state includes or allows to be deducted from its definition of “purchase price” ultimately decides how much tax has to be calculated and collected on each order. If you charge for shipping, offer coupons, allow trade ins, bundle together services with your products, or charge restocking or finance fees, the structure of how these are invoiced or stated on the receipt can affect how they impact your sales tax calculation. Sellers should fully understand what elements of their order are included in the equation, or risk under collecting tax and leaving themselves open to liability, or over collecting tax and leaving themselves open to consumer lawsuits.

(Myers v. Commonwealth; No. 67 MAP 2021; No. 68 MAP 2021)

Posted on March 8, 2023