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Last Updated: 11/7/2012

SSUTA Sales Price-Employee Incentives and Discounts

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This is a notice to explain the new rule that was adopted by the Streamlined Sales Tax Governing Board meeting on May 18, 2011 along with how it will impact administration of Minnesota sales and use tax law.

 

Definition of Sales Price – Employee Incentives and Discounts   

SSUTA Rules and Procedures were modified to clarify the treatment of employee incentive program points in accordance with “sales price” as defined in Appendix C, Library of Definitions, of the Agreement. “Employee incentive credits” are treated differently than “employee discounts” for purposes of determining the sales price of taxable items.
 
“Employee incentive credits” are points or credits employees earn as an incentive to reach goals in sales, performance, etc. which are set by the employer. Employee incentive program credit, whether measured in a dollar or point value, that is allowed by the seller to its employees on a sale is included in the total sales price of taxable goods or services.
 
For example, an employer that is a retailer offers employee points that serve as an incentive for employees to reach specific sales goals. Points earned can be used by the employee to purchase items from the retailer. The points used do not reduce the taxable selling price of the item to the employee. An employee redeeming $50 in points toward the purchase of a $200 item must pay tax on the full selling price of $200. 
 
“Employee discounts” that are allowed by the seller and taken by the employee on a sale are discounts that reduce the taxable sales price, provided they are not reimbursed by a third party. For example, a retailer offers all employees a 20% discount on items sold by the retailer. Since the employee discount is available to all employees and is not reimbursed by a third party, the value of the discount is excluded from the sales price. An employee purchases a $200 item from their employer and receives the 20% employee discount of $40. The taxable sales price of the item is $160 ($200 - $40 = $160).
 
Revenue Notice #03-15: Sales and Use Tax – Taxation of Incentive Items, has been modified to adopt the position taken by Streamlined Sales Tax.
 
References: Governing Board Rule 327.7 Sales Price – Employee Incentive Program Points and SSUTA Appendix C, Library of Definitions