Taxes Charged on Pre-Rebate Price -- WTF??

[Henry Wong]

Greetings, I'm from the US, and as with many Americans, did a shopping spree over this weekend...

Had to buy two TVs, and bought them from two different major stores. And noticed after purchasing the TV from the first store, that the taxes are charged at the pre-sale twice. This means that if the black friday sale was 50% off, I had to pay twice the tax, as it is the tax on pre-sale price !! Talked to the manager and was assured that, that is how it is done -- it is rebate, which follow different tax rules. WTF?

Went to another major store, to buy yet another TV, and this time looked at the fine print. And sure enough, written on the label, was a statement that said that taxes are charged at the pre-rebate price. The signs were also clear that it is a rebate, and not a sale. Again, WTF?


Seriously, this probably happens all the time, and quite frankly, I never noticed because I didn't buy big ticket items. Has anyone else encountered this? This seems awfully fishy to me...

Henry

[Bear Bibeault]

That's standard. Tax is charged on the price you pay. The rebate is after-sale, so it doesn't diminish the tax.

[Henry Wong]

Bear, thanks for the response. I am pretty sure that a topic on the application of taxes, is boring, and would quickly die...

Bear Bibeault wrote:That's standard. Tax is charged on the price you pay. The rebate is after-sale, so it doesn't diminish the tax.

Unfortunately, it is a little blurred here. In both of these cases, with two separate major stores, these are instant-rebates. I never actually paid the original price. This is not a case of being charged the higher price, and getting the money back. The stores "took care" of everything regarding the rebate -- and charged me the after rebate price.

Also, how is instant-rebates different from using coupons? It just seems like a sales tax loophole (that is probably convoluted), that states have little incentive to fix.

Henry

[Bear Bibeault]

"Instant" rebates are still considered after-sale.

[Henry Wong]

Did a little bit of research. And (1) it looks like it varies by the state, and (2) it may also varies depending on whether it is a store rebate versus a manufacturer rebate.

Interesting, that there is a variation -- but I guess that makes sense, as sales taxes are state and local taxes.


Anyway, has anyone else noticed this? Thanks.
Henry

[Greg Charles]

Generally speaking, if the discount comes from the manufacturer, whether by coupon or rebate, the state charges sales tax on the full pre-discounted amount. If the discount comes from the retailer, then the sales tax is on the discounted amount. Some "instant rebates" are offered by the manufacturer, but others are offered directly by the store, so the tax could vary based on that.

Why don't manufacturers just discount the wholesale price instead of bothering with rebates and coupons? Because they don't trust retailers to pass the full savings to the consumers. The manufacturers are taking a hit in the profit per unit and to compensate for that, they want to reap the full benefit of increased sales volume.

Why don't states' tax boards treat the two different discounts the same way? I don't know. Probably because they never have. Coupons are often for untaxed groceries anyway, and instant rebates are sort of a new concept, so maybe no one has gotten around to complaining hard enough yet. Start a petition though. I'll sign it.

[fred rosenberger]

Greg Charles wrote:Coupons are often for untaxed groceries anyway

What do you mean by untaxed groceries? There is no such thing where I live.

I think manufacturers also like mail-in rebates because if you don't follow the directions TO THE LETTER, they can deny your request. So people think "I'll save $100 if I buy this TV", so lots of folk do, and then never successfully get their rebate.

[Greg Charles]

In California, most foods and drinks are tax free from grocery stores, though not from restaurants. I did a quick check and it seems like most states are similar, or at least have a discounted tax rate for food.

[Henry Wong]

fred rosenberger wrote:
I think manufacturers also like mail-in rebates because if you don't follow the directions TO THE LETTER, they can deny your request. So people think "I'll save $100 if I buy this TV", so lots of folk do, and then never successfully get their rebate.

Luckily, in this case, both of these were instant rebates. So, nothing to fill out, and nothing to submit. It doesn't even get charged to my credit card -- I just gets charged the post-rebate price (with the pre-rebate taxes).

Henry

[Henry Wong]

fred rosenberger wrote:

Greg Charles wrote:Coupons are often for untaxed groceries anyway

What do you mean by untaxed groceries? There is no such thing where I live.

Greg Charles wrote:In California, most foods and drinks are tax free from grocery stores, though not from restaurants. I did a quick check and it seems like most states are similar, or at least have a discounted tax rate for food.

In New York, for groceries, the sales tax applies to carbonated beverages, candies, and pet foods. It is also applied on sandwiches, heated foods, prepared foods, and foods consumed on premise.

All other food groceries are considered non-taxable.

Henry

[Martha Simmons]

Henry Wong, OP: I am pretty sure that a topic on the application of taxes, is boring, and would quickly die...

Yeah, right. Just look at Human Mortgage Calculator thread.

[Jayesh A Lalwani]

An rebate is from an accounting POV, more or less, the store paying you to shop at the store. Now if I paid you to shop at Costco instead of sam's club, you wouldn't expect to pay less sales tax, would you? A rebate from Costco is the same thing. Costco is paying you to shop at Costco instead of Sam's club.

[Henry Wong]

Jayesh A Lalwani wrote:An rebate is from an accounting POV, more or less, the store paying you to shop at the store. Now if I paid you to shop at Costco instead of sam's club, you wouldn't expect to pay less sales tax, would you? A rebate from Costco is the same thing. Costco is paying you to shop at Costco instead of Sam's club.

Well. let's hope that that analogy doesn't become widely accepted... because if it does, not only will I pay sales taxes for the rebated amount, but I might have to pay income taxes for that amount as well...

Henry

[fred rosenberger]

Jayesh A Lalwani wrote:An rebate is from an accounting POV, more or less, the store paying you to shop at the store. Now if I paid you to shop at Costco instead of sam's club, you wouldn't expect to pay less sales tax, would you? A rebate from Costco is the same thing. Costco is paying you to shop at Costco instead of Sam's club.

What about the fact that I have to pay to shop at Sam's or Costco? Both have membership fees, and I do pay income taxes on that money before giving it to them. So I have to pay for the right to pay taxes there.

Shouldn't that entitle me to a discount on my taxes somewhere?

[Jayesh A Lalwani]

Henry Wong wrote:

Jayesh A Lalwani wrote:An rebate is from an accounting POV, more or less, the store paying you to shop at the store. Now if I paid you to shop at Costco instead of sam's club, you wouldn't expect to pay less sales tax, would you? A rebate from Costco is the same thing. Costco is paying you to shop at Costco instead of Sam's club.

Well. let's hope that that analogy doesn't become widely accepted... because if it does, not only will I pay sales taxes for the rebated amount, but I might have to pay income taxes for that amount as well...

Henry

Actually yes, technically, you do have to pay income tax on any "gifts" that corporations give you for doing business with them. The corporation declare those gifts as "expenses" and do not pay taxes on those expenses. The tax man needs his pound from somewhere. That toaster that the banks throw at you for opening an account; you are suppossed to pay income tax on that toaster. However, the IRS tries to be "friendly" and ignores that income. THere was an incident few years ago, where Citibank was awarding frequent flyer miles for opening investment accounts, and end of the year they send tax forms to all their "customers" stating the value of the miles as income.

Rebates a slightly differrent matter though, since rebates have exemptions built into them. However, in some cases, rebates are considered income and hence are taxable. . Read this article