A New York State Administrative Law Judge has held that a gas station operator that provided discounts to customers pursuant to its participation in a fuel discount program was required to include the amounts it received as reimbursement for its participation in that program in its taxable receipts for sales tax purposes. Matter of GRJH, Inc., DTA No. 825192 (N.Y.S. Div. of Tax App., Jan. 15, 2015).

Facts. GRJH, Inc. (the “gas station operator”) operated several Sunoco gasoline stations in New York State. All of its gas stations participated in the Price Chopper Fuel Advantage Program (“Program”). Under that fuel discount program, a customer earned points by purchasing items at a Price Chopper grocery store. The customer could then use those points to receive a 10-cents-per-gallon discount on the price of gasoline at Sunoco stations.

Within two days of making a discounted sale to a customer, the gas station operator was reimbursed by its Sunoco gasoline distributor for the discounts it gave to program participants. The reimbursement was in the form of a credit against the gas station operator’s purchase of gasoline from the distributor.

The gas station operator reported and paid sales tax on its sales of gasoline based on the actual selling price of gasoline at the pumps. In cases where the customer received a discounted price through the fuel discount program, the gas station operator only reported and paid sales tax on the discounted price. The gas station operator did not report or pay sales tax on the reimbursement credits it received from the Sunoco distributor.

The Department audited the gas station operator’s sales and use tax returns for the period June 1, 2005 through February 28, 2010. The Department determined that the operator should have included the undiscounted prices for gasoline in its taxable receipts, and assessed additional sales tax. At issue was whether taxable receipts included the distributor credits reimbursing the operator for the customer discounts.

Tax Law § 1105(a) imposes sales tax on the “receipts” from every retail sale of tangible personal property. “Receipts” are defined as “[t]he amount of the sale price of any property . . . whether received in money or otherwise, including any amount for which credit is allowed by the vendor to the purchaser, without any deduction for expenses . . . .” Tax Law § 1101(b)(3). The New York State sales tax regulations provide that, where a “manufacturer” issues a “coupon” entitling a customer to a discount on the item purchased and later reimburses the seller, sales tax is due on the amount paid plus the amount of the coupon credit. 20 NYCRR § 526.5. The same regulation also states that reimbursement from the manufacturer includes reimbursement in any form, including credits against purchases.

The gas station operator argued that it properly reported and paid the sales tax based on the actual discounted selling price at the pumps, and properly excluded from its calculation of receipts the credit reimbursements it received from the Sunoco distributor. The gas station operator pointed out that the credit reimbursement amounts — provided by the gasoline distributor as a credit against gas purchases by the operator — were properly accounted for as a reduction in its cost of goods sold. The Department argued that the fuel discount program was analogous to a manufacturer’s coupon and that, therefore, the gas station operator’s receipts for sales tax purposes consisted of the actual amounts paid by customers, plus the amounts the gas station operator received in credits for the discounts (i.e., the undiscounted price per gallon).

Decision. The ALJ upheld the Department’s assessment, and found that the Department’s analogy of the fuel discount program to a manufacturer’s coupon was an apt one. The ALJ explained that the method under which the fuel discount program provided a discount, through use of a so-called store “loyalty card,” was essentially “an ongoing or reusable coupon,” and therefore “fits squarely” within the definition of a taxable “receipt.” The ALJ was not convinced by the gas station operator’s argument that it was not a manufacturer’s coupon because there was no actual “coupon” or “manufacturer,” finding that such an approach elevated form over substance.

Additional Insights

The ALJ’s conclusion is consistent with the Department’s Tax Bulletin ST-145 (TB-ST-145, Sept. 29, 2011) and with the taxability of manufacturers’ discounts in general. When a manufacturer’s discount applies, sales tax is due on the full price of the item, not on the discounted price. This is because the seller receives the full price of the item when the seller is reimbursed by the manufacturer, although the customer pays only the discounted price. In this case, although the reimbursement to the gas station operator was in the form of a credit against its gasoline purchases rather than in the form of a direct payment, the ALJ found that the form of reimbursement did not impact the treatment of the reimbursement for sales tax purposes.