New York—Sales and Use Tax: Coupon Processing Services Not Taxable

New York:  A taxpayer’s coupon clearing products it sells to advertisers that issue discount coupons and the retailers that accept them are not subject to New York sales and use tax.

Products Sold To Retail Customers

The primary function of the coupon clearing product that the taxpayer sells to its retailer customers is the service of processing the coupons and obtaining payment from the advertisers that issued the coupons. This is not a taxable service. As part of that product, the taxpayer provides its retailer customers with prewritten software with limited functionality. That prewritten software is an incidental part of the service the taxpayer is selling to its retailer customers and thus does not render that service taxable.

Products Sold To Advertising Customers

The product the taxpayer provides to its advertiser customers has a number of components. In addition to processing the coupons to determine how much the advertiser customer owes the retailers that redeemed the coupons, the taxpayer provides “fraud prevention services” that aim to ensure that the coupons submitted by the retailer to the taxpayer were accepted by the retailer as part of a legitimate retail sale of the advertiser’s product. The taxpayer also provides each advertiser customer with data derived from the taxpayer’s processing of the advertiser’s coupons, along with benchmark data derived from coupon data aggregated anonymously from all of the taxpayer’s advertiser customers, and prewritten software with which to do promotion planning analyses and budget planning. While the taxpayer’s invoices to an advertiser customer list a separate charge for the prewritten software/data offering, the taxpayer’s product cannot be purchased without this data/prewritten software component. Even though the product the taxpayer sell to advertisers contains multiple components, it should be taxed as a single unit because it is sold as a standardized, integrated product and its components cannot be bought separately from the taxpayer. The primary function of the product sold to advertisers is a coupon processing service, which is not a taxable service. Therefore, none of the taxpayer’s charges to its customers are subject to sales tax.

TSB-A-20(28)S, New York Commissioner of Taxation and Finance, June 9, 2020, released December 2020

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