Sales Tax on Coupon Amounts

I don't remember how he phrased this, but hubby said something as we were leaving Publix tonight about how you only pay taxes on the amount after all the coupons.  I was quick to correct him that it doesn't quite work that way.  Unfortunately, we do live in a state where we have to pay sales tax on food purchases to begin with.  As if that's not bad enough, we get stuck paying sales tax on the amount of our purchases pre-coupon.

This is a common question and a common misconception about coupon use.

Coupons are considered currency as far as the stores are concerned.  The stores are reimbursed on the manufacturer coupons that are used, by the manufacturer, however they (the store) still have to pay sales tax on the full sale. Since it is their regular practice to pass sales tax on to the consumer (which is who is really responsible for paying it anyway) they pass on the full amount.

Since store coupons are really nothing more than extended sale, we don't pay sales tax on that amount.  This is why if you have a coupon for a "FREE" item or a coupon that makes an item free when combined with a particular sale, you'll still end up paying something out of pocket.

 To get a better image of how this works, take a look at my CVS trip from Sunday.  You'll find that the total of all of my items (before coupons) was $21.95.  I used $18.25 in manufacturer coupons (which is what ECBs are considered as well) and a $4 store coupon.  My total tax liability was $1.44 (which is 8% of $17.95; or the amount after the $4/20 coupon is subtracted).  

If you get lucky and you have several coupons that create an overage and all of your items are free after coupons you may reduce your tax liability.  This happened for me last week at CVS when my total after coupons was <.13>, and I actually paid less than the tax total out of pocket.