Refund of Sales Tax; Discount Coupon Description Requirement

Myers v. Commonwealth, 260 A.3d 349 (Pa. Cmwlth. 2021), direct appeal, appeal docket nos. 67 & 68 MAP 2021

This direct appeal arises from a petition for review filed by Myers (Taxpayer) challenging the Board of Finance and Revenue’s denial of Myers’s request for partial refund of sales tax paid on items Myers purchased from BJ’s Wholesale Club, Inc. (BJ’s), a retailer, using discount coupons. Commonwealth Court summarized the relevant facts as follows:

Taxpayer sought a partial refund from the Department of Revenue (Department), Board of Appeals (BOA) of sales tax he paid on items he purchased on three occasions at BJ’s in Downingtown, Pennsylvania. In each of the first two instances at issue in this appeal, his purchase receipt reflected that he bought a single item designated as taxable and that he received a discount from the purchase price by applying a coupon. Neither the item nor the nature of the discount coupon was identified on the receipt in either instance. In the third instance, Taxpayer purchased six items, all of which were taxable, and received discounts by using five coupons. Once again, the receipt did not describe either the items or the coupons but did designate all the items as taxable.

Slip op. at 2 (record citations and footnote omitted). The BOA concluded that Myers failed to sustain his burden of proving that his receipts described both the items purchased and the coupons applied, as required by the applicable Department regulation, 61 Pa. Code § 33.2(b)(2), and was therefore not entitled to a refund. In relevant part, 61 Pa. Code § 33.2(b) excludes “from the taxable portion of purchase price, if separately stated and identified”:

(2) Discounts. Amounts representing on-the-spot cash discounts, employe discounts, volume discounts, store discounts such as “buy one, get one free,” wholesaler’s or trade discounts, rebates and store or manufacturer’s coupons shall establish a new purchase price if both the item and the coupon are described on the invoice or cash register tape. An amount representing a discount allowed for prompt payment of bills which is dependent upon an event occurring after the completion of the sale may not be deducted in computing the tax. A sale is completed when there is a transfer of ownership of the property or services to the purchaser.

61 Pa. Code § 33.2(b)(2) (emphasis added).

The Board of Finance and Revenue affirmed the BOA. Myers appealed to Commonwealth Court. A panel of the Court  reversed the Board’s order (Myers I), and exceptions were filed. The en banc Court dismissed the exceptions. . Commonwealth Court summarized the panel’s opinion in Myers I as follows:

this Court concluded Taxpayer was entitled to the requested sales tax refunds on the purchases shown on the three receipts at issue. Myers I, slip op. at 27. The panel reasoned that the items were sufficiently described to sustain Taxpayer’s burden of showing a new purchase price was established for purposes of the regulation. Id., slip op. at 21-27. The receipts indicated that the items were taxable, the application of coupons resulted in reduction of the purchase prices, and Taxpayer was charged sales tax on the undiscounted prices. Id., slip op. at 22-24. Because Taxpayer bought only one item in two instances, both the sales tax and the discount coupon shown on each of those two receipts could only have related to that item. Id., slip op. at 23. Therefore, the panel concluded that no further description was needed on either receipt to demonstrate Taxpayer’s entitlement to the sales tax refund he sought. Id. Similarly, because the third receipt showed that all six purchased items were taxable, the panel concluded that the coupon discounts must have related to taxable items. Id., slip op. at 24. Again, no further description on the receipt was necessary to demonstrate Taxpayer’s entitlement to a sales tax refund. Id.

Slip op. at 3-4. The Court summarized the Board and BJ’s arguments on exceptions as follows:

In their exceptions, the Commonwealth and BJ’s posit that not every kind of coupon discount is excludable from sales tax. The Department’s regulation excludes from sales tax “[a]mounts representing on-the-spot cash discounts, employe[e] discounts, volume discounts, store discounts such as ‘buy one, get one free,’ wholesaler’s or trade discounts, rebates and store or manufacturer’s coupons … if both the item and the coupon are described on the invoice or cash register tape.” 61 Pa. Code § 33.2. Thus, relevant here, to qualify for a sales tax exclusion, a coupon discount must be (1) an “on-the-spot” cash discount or a store discount such as “buy one, get one free,” a rebate, or a store or manufacturer’s coupon, and (2) “described” on the receipt, along with the discounted item. See id. The Commonwealth and BJ’s argue that some types of coupons are not included in the regulation, such as percentage reductions of entire purchases, specific dollar-amount discounts from a minimum purchase amount, discounts for shopping on a specific day, and other discounts not limited to specific items purchased. These types of discounts, although they may be given pursuant to coupons, cannot be linked to specific discounted items. Therefore, the Commonwealth and BJ’s reason that such discounts would not qualify for sales tax refunds. It follows that the regulation requires a taxpayer to present a receipt that shows both the specific items purchased and a connection between those specific items and the discount given. Of necessity, a taxpayer cannot qualify for a sales tax refund merely by presenting a receipt that shows only that a taxable item was purchased and a coupon discount was given, because there is no way to discern from such a receipt that the discount fell into one of the categories specified in the regulation.

Slip op. at 7-8 (footnotes omitted).

Commonwealth Court reaffirmed the panel’s opinion, holding that discounts given by a retailer that are not linked to specific items, such as percentage reductions of an entire purchase or discounts for shopping on a specific day, qualify for exclusion from sales tax.  The court explained that for a receipt to establish a taxpayer’s entitlement to a sales-tax refund on the basis that an item’s taxable price was reduced by a discount, the receipt must show that the discount was given on a taxable item but need not specifically link the item to the discount. Thus, the court concluded that Myers was entitled to sales-tax refund based on receipts that included only taxable items and that reflected discounts, which were necessarily given on taxable items. The court concluded:

Contrary to the contention of the Commonwealth and BJ’s, the language of the regulation does not impose a blanket requirement that every discount must correspond to a specific item. Rather, the issue is the sufficiency of a receipt in any given case to demonstrate that the discount is one that qualifies for a sales tax exclusion. That is a case-by-case determination for each purchase for which a taxpayer seeks a sales tax refund. As the panel correctly reasoned, the only qualifier under the regulation is that the discount must be on an item that is taxable. See Myers I, slip op. at 21-22. Otherwise, there is no sales tax to reduce. Thus, where a taxpayer has purchased multiple items, some of which were taxable and some of which were nontaxable, the receipt may be insufficient to demonstrate entitlement to a sales tax refund if the Department cannot discern to which item(s) the coupon discount(s) applied. See 61 Pa. Code § 33.2, Example (ii).

Here, however, Taxpayer in each of the first two transactions at issue purchased a single taxable item and presented a discount coupon that reduced the purchase price of that item. In that situation, there can be no dispute that the coupon reduced the purchase price of the item and established a new purchase price. Taxpayer is therefore entitled to a refund on the excessive sales tax associated with the amount of the discount.

The outcome is the same regarding the third receipt, where multiple items were purchased, because all of the items were taxable. In such a case, the 10 amount of the excessive sales tax paid is the same regardless of which item or items were discounted by the application of coupons.

Slip op. at 9-10.

Judge McCullough dissented, disagreeing with the majority that Myers demonstrated that he was overcharged sales tax by BJ’s in violation of 61 Pa. Code § 33.2. Judge McCullough opined that the plain text of the Tax Code and regulations refutes the Majority’s conclusion that the regulation only requires a description that allows one to discern that a taxable item was purchased, and a coupon was accepted that applied to a taxable item purchased, explaining that:

The description requirement ensures the proper administration of the sales tax law and prevents evasion of the sales tax. It also protects the vendor by requiring it to show through adequate records why the taxable price of the item was reduced. By requiring the vendor to document a taxable item and a coupon on an invoice or receipt, the vendor is able to establish that it collected the appropriate amount of sales tax.

Nothing in the Tax Code or the regulations require a vendor to have the capability to link a coupon to a specific item. According to BJ’s, it does not have that capability. Therefore, it is not required to assess, collect, or remit to the Department an amount less than 6% sales tax of the original undiscounted purchase price of the taxable items listed on Taxpayer’s receipts.

Slip op. at PAM-4. Thus, Judge McCullough concluded that she would grant the Commonwealth’s exceptions and deny Myers’ petition for refund on the basis that:

There is no law in Pennsylvania that requires a vendor, such as BJ’s, to have the capability of linking a discount coupon to a particular item on the register receipt. If Taxpayer is unsatisfied with this business practice, he can take his business elsewhere, and shop at a vendor that has such capability of imposing and collecting sales tax on a discounted price. This Court cannot interfere with the Department’s method of imposing sales tax on a per item basis, and its ability to ensure that vendors are reporting and remitting the correct amount of sales tax. This is precisely what the Majority has done here today by holding that there is no requirement within the regulation that the receipt indicate precisely to which taxable item the coupon relates.

Slip op. at PAM-9.

The Board and BJ’s appealed the Commonwealth Court’s decision to the Supreme Court.


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