United States: Coupon Discounts Raise Sales Tax Issues For Retailers

Last Updated: May 8 2015
Article by Deborah Savarese Sloan, Kirk Lyda, Tamara Marinkovic Hines, Emmanuel E. Ubiñas, John M. Allan, Mark P. Rotatori and Morgan R. Hirst

Most Read Contributor in United States, September 2019

Contingent fee lawyers across the country continue to throw their hats in the sales tax ring, filing lawsuits against retailers who honor discount coupons, alleging they overcharge consumers for taxes. Individual and class action lawsuits are being filed contending retailers overcollect tax by charging on the original retail price rather than the discount price. Transforming what would ordinarily be a mundane tax dispute into a much more controversial tort case, plaintiffs often allege not only state tax violations but also consumer protection and fraud claims, giving rise to punitive damages on top of penalties and interest. The claims are simple to plead and easy to understand, making it easy for the same firms to duplicate nationwide and others to copycat. The implications for retailers are substantial, given the number of retailers that honor coupons, the frequency with which they are used, and the added complexity of online sales. Even when collected taxes are remitted to tax authorities, exposure may still exist if there have been overcollections.

Whether sales tax is owed on the original retail price or the discount price, and whether retailers are exposed to liability for overcollecting taxes subsequently remitted, differs state-to-state. The ability of consumers to sue retailers is also subject to challenge in many jurisdictions. Retailers would be wise to confirm their understanding of the tax laws in jurisdictions where they maintain retail outlets and consider implementing precautionary measures to avoid being the next target.

Claims and Lawsuits

While lawsuits against retailers that honor discount coupons are not new, more recent case filings indicate an upward trend in this type of sales tax case. In the past year alone, several putative statewide class action lawsuits have been filed against major retailers in multiple states across the country. In most instances, a single named plaintiff with a receipt from one store visit is enough to file suit. The crux of the complaint is generally the same—retailers improperly calculate sales tax on the full amount of an item rather than the discounted amount after a coupon has been applied. The causes of action, while not always identical, follow a similar pattern and include violations of state sales tax statutes, violations of state consumer protection and unfair trade practice statutes, and common law claims such as fraud, unjust enrichment, conversion, and the like.

Legal Commentary

The correct tax treatment of coupons varies by coupon type and jurisdiction. A store coupon reducing the sales price paid by the consumer is typically excluded from sales tax. If the retail store receives other consideration, such as a reimbursement from the manufacturer, some states tax the original undiscounted retail price (the discounted price plus the reimbursement) while others tax the discounted price. It may not be apparent to the consumer whether the retail store was reimbursed.

Consumers who believe they overpaid sales tax have a variety of remedies that often differ from state to state. Some states prohibit consumers from filing lawsuits against retailers to recover tax that was allegedly overcollected. Accordingly, lawsuits may be suspect both as to whether the tax was overcollected in the first place and whether the lawsuit is the proper forum to make that determination. It is certainly questionable whether one consumer can represent a class of other consumers when the facts and law might vary from one consumer to the next.

What Retailers Should Do Now

Retailers can do several things now to protect themselves against claims or to better position themselves in the event litigation occurs.

  • Review customer agreements and disclosures and consider whether the potential exists to benefit from contractual limitations.
  • Ensure you are using effective software to manage multistate sales tax.
  • Conduct an internal review to ensure you understand exactly what practices are being followed jurisdiction-to-jurisdiction and whether it is consistent with state and local law. To the extent discrepancies are discovered, consult with professionals experienced in negotiating disclosures and settlements that minimize expense and cut off past liability.
  • If significant issues are revealed after internal review, consult with lawyers with track records for successfully handling these types of claims. Draw upon good relationships with state tax administrators throughout the country. Explore all options for resolving or mitigating the issue, including new or more fulsome disclosures or modifications to customer agreements.
  • Consider whether the right circumstances exist for voluntary disclosures. These can be advantageous; believe it or not, the tax collector can even sometimes be an ally.
  • If litigation ensues, position yourself for efficiency and success by engaging firms capable of handling multijurisdictional disputes with centralized teams and with experience defeating class certification. 

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions