The Texas Comptroller recently released guidance on the taxability of contest prizes and giveaways. Many contests and sweepstakes offer prizes for the winners. The persons running the contests or sweepstakes must purchase these prizes unless they are donated. The purchase of tangible personal property (TPP) used as prizes is taxable. If the items are purchased from an out-of-state vendor who does not collect Texas tax, the purchaser is responsible for remitting use tax to the Comptroller's office. This also applies to items that are given away as gifts or samples. Purchasers of TPP used as giveaways, as sample products, or for advertising purposes, must pay sales or use tax to their vendors.
In contrast to prizes and giveaways, discounts are not taxable. When a retailer provides a discount to a customer, tax is based on the total purchase price. For example, if a retailer gives a $10 discount on the purchase of a $100 item, tax is based on the $90 purchase price paid by the customer.