Editorial: Watch out for the taxes you didn't know about

Jul. 24, 2014 @ 02:52 PM

One of our readers brought in some grocery store receipts a few weeks back to share his dismay and hopefully get some clarification.

A thrifty shopper, he'd received some big in-store discounts on products by buying in bulk — a buy 10, save $5 deal.

Unlike most of us, Sevierville's John Crow studied his receipt after the purchases and noticed something strange.

His subtotal was $43.79 — he'd saved $15 — but he was still paying taxes on the $15 he'd saved. The receipt listed a total "taxable value" of $58.79.

Crow said he talked to the business's manager about paying tax on money he didn't spend, but he didn't get satisfactory answers —something about the corporate office having programmed the registers. So Crow began calling around: to the store's corporate office, the state Department of Revenue.

He didn't get a clear answer. But he did continue shopping.

For his next grocery purchase, Crow made another pair of buy 10, save $5 purchases, and he also used a $3 manufacturer's coupon on a razor.

This time, Crow's subtotal was $33.63, while his "taxable value" showed up as $46.63 — $13 higher than the subtotal, and exactly the amount he'd saved.

While we suspected all along that the value of manufacturer's coupons were taxable, Crow said he'd never noticed other stores taxing their value, and with the buy 10, save $5 deal, he'd not used a coupon.

So we made some calls — first to the Tennessee Department of Revenue through the phone line for the general public. We talked to what seemed to be a call center, and the person on the other line had no immediate answer, put us on hold and then came back after a long hold to tell us that yes, coupon values were taxable. She couldn't provide much more than that — the laws dictating the charges, etc., but it was some sort of answer. She had no clue about the in-store discounts.

We then contacted the Tennessee Grocers Association, assuming it was something they deal with on a regular basis. They, too, were stumped initially, but did a fantastic job of following up with our questions and tracking down some answers, which they supplied on a later call back.

In the meantime, we reached out to the state again, through their media department. Again, it wasn't immediate, but an answer was received: Stores are required to tax the value of an item if a coupon is used, since the store receives that money back from the manufacturer — and, in the end, the customer is responsible for that cost. 

A phone call with the store's corporate office confirmed that on the buy 10, save $5 deal, the distributor is, in essence, reimbursing the store for the discounted sale — sort of like a paperless coupon — thus requiring the value be taxed.

"To charge tax on that — money you didn't even spend — it's ridiculous to be paying tax on that," Crow said.

While there is absolutely no wrongdoing afoot, it is amazing more consumers haven't expressed concern and frustration over paying tax on a money they didn't spend. Could you imaging getting $5,000 off a brand new car but still having to pay taxes on those big savings? 

It's a lot easier to overlook pennies extra on your grocery tax bill — most people probably don't even look at the confusing, 18-inch long curled paper that goes into their shopping bags. But over time it adds up. If your family saves $25 weekly with coupons, your "unseen" grocery tax bill for the year would exceed $100.

That's food for thought.