Rewards Programs That Do Not Qualify as Cash Discounts Are Included in Sales Price

Oct 29th, 2020

The Texas Comptroller of Public Accounts recently reaffirmed in a decision that rewards programs that do not qualify as cash discounts are included in the taxable sales price. The taxpayer was a direct sales organization that sold natural health and beauty products. It offered "host rewards" discounts based on a host's sales volume. The taxpayer treated the host rewards discount as a cash discount instead of including it in the sales price.

In Texas, direct sales organizations must collect tax on the total amount received for sales. This includes items purchased with rewards discounts for hosting a direct sales event, and items earned by the host based on the volume of the host's sales. The Comptroller found that discounts of this kind are distinct from actual cash discounts because the rewards are payment for the host's performance and not a true cash discount. Rewards used by the host to lower the price of items are included in the taxable sales price.