Sales & Use Directive SD-98-1

Subject: Store Discount Cards
Tax: Sales & Use Tax
Statute: G.S. 105-164.3(16)
Issued By: Sales and Use Tax Division
Date: April 27, 1998
Number: SD-98-1

This directive addresses the application of State and local sales tax to products purchased with a store discount card. The directive is effective immediately.

Store discount cards are issued by certain retailers and enable customers to purchase products at a discounted price by presenting the card to the issuing retailer. Customers without a discount card cannot purchase products for the discounted price. The purpose of the discount card is to encourage customer loyalty, increase certain product sales, and promote sales within specific market areas. The price reductions resulting from the use of the discount card are financed by the issuing retailer and product distributors, manufacturers, and suppliers through programs such as purchase rebates and promotional and purchase allowances.

A price reduction on a product obtained by a customer through the use of a discount card issued by a retailer constitutes a reduction in the sales price of the product. Consequently, when a customer uses a discount card to purchase a product, sales tax is to be computed on the price at which the product is sold to that customer by the issuing retailer. That price is the amount after the shelf price of the product has been reduced by the card discount.

This directive does not change the position of the Department with respect to retailers' coupons and manufacturers' coupons. A retailer's coupon continues to be considered a price reduction; consequently, sales tax is computed on the price reduced by the discount represented by the coupon. In contrast, a manufacturer's coupon is considered a partial payment of the item on which the retailer receives reimbursement from the manufacturer. In the case of a manufacturer's coupon, sales tax is computed on the price before the coupon is credited.

If you have questions about this directive, you may call the Office Services Division, Taxpayer Assistance Section, of the North Carolina Department of Revenue at (919) 733-3661. You may also write to the Division at P.O. Box 25000, Raleigh, N.C. 27602.