Laws, Regulations & Annotations

Business Taxes Law Guide – Revision 2018

Sales and Use Tax Annotations

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Annotation 330.3078


330.3078 Video Rental Coupons. A taxpayer who is in the business of renting video tapes will sell ABC Co. 25,000 coupons at a total price of $62,500 (25,000 coupons at $2.50 each). These coupons entitle the holder to a free video cassette rental at any of the taxpayer's stores and will be distributed at no charge by ABC Co. to its customers. ABC Co.'s customers will then present these coupons at a taxpayer's store for the rental of a video cassette.

Under these facts, the taxpayer is regarded as selling nontaxable rights to free video cassette rentals to ABC Co. The actual coupons are a record of the rights to the free rentals and do not constitute the sale of tangible personal property. ABC Co.'s distribution of these coupons to its customers also is regarded as the use of intangible property. As such, no tax applies on either the taxpayer's sale of these coupons or on ABC Co.'s gift of these coupons to its customers.

However, rental of these video cassettes is a continuing sale and purchase and tax applies measured by the rental receipts. (Regulation 1660(d)(2).) The tax imposed on this type of lease is a use tax on the lessee, and the taxpayer, as lessor of the video cassettes, is responsible to collect the tax from the lessee. (Regulation 1660 (c)(1).) In this case, the taxpayer is renting video cassette tapes to customers who present a coupon for a "free" rental. Since the taxpayer will have received compensation from the ABC Co. for the rental of its video tapes via amounts paid by ABC Co. for coupons, the rental receipts of the video tapes will consist of the $2.50 received from the ABC Co. for that customer's coupon. Tax on this amount is imposed on the lessee (the person presenting the coupon) and the taxpayer is required to collect this tax and remit it to the state. The tax does not apply on the amounts the taxpayer received on its sale of "free" coupons which are not redeemed. 8/17/95.