Buy-one-get-one-free (BOGO) deals are a retail staple, especially during holidays and big sales events. But “free” doesn’t always mean untaxed.

Whether you’re giving away a second item or discounting it deeply, the state may require you to charge sales tax on the value of both items—depending on how the deal is structured.

Common BOGO Deal Structures

Here are the four most common ways businesses promote BOGO-style offers:

1. Buy One, Get One Free
2. Buy One, Get One 50% Off
3. Buy Two, Get One Free
4. Bundle Offers (“Get both for $20”)

Each has slightly different tax implications.

When Sales Tax Applies to the "Free" Item

If you’re selling two items for the price of one, California considers this a single sale with the price split between both items. You must collect sales tax on the combined fair market value—even if one item rings up as free.

Example:

A retailer runs a “Buy one t-shirt, get one free” deal. The t-shirts are normally $20 each. Even if the second item is listed at $0, you must still collect sales tax on $20 + $0 = $20.

That’s because the customer receives $40 worth of merchandise and pays $20—so both items are effectively being sold for half price.

When the Discount Reduces the Taxable Amount

If the second item is truly free without condition—for example, a giveaway that doesn’t require purchase—then tax is not owed on that item.

However, this is rare. Most BOGO-style offers are tied to the sale of the first item, and that makes them part of the same taxable transaction.

BOGO Tax Summary Table

FAQs

Q: What if I separate the “free” item on a different receipt?
If it’s still conditional on buying the first item, splitting it doesn’t change the tax liability. The CDTFA looks at the economic reality, not the receipt format.

Q: Are BOGO offers taxed differently online?
No. California applies the same rules to online transactions and brick-and-mortar purchases.

Our Guides to Taxes on Discounts in California

Do You Pay Sales Tax on Coupons in California?

California treats store coupons and manufacturer coupons differently when it comes to sales tax. Learn when a discount reduces your tax—and when it doesn’t.

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What Is a Taxable Rebate in California?

Rebates can reduce the amount you pay—but they don’t always reduce the amount of sales tax owed. Learn which rebates are taxable and why it depends on who provides the money.

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Are Gift Cards Taxable in California?

Gift cards themselves are not taxed in California—but what you buy with them is. Learn when sales tax applies and how it works with gift card promotions.

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Business Discount Tax Rules in California

Offering discounts? Learn how California sales tax applies to coupons, rebates, bundle deals, and BOGO offers so you don’t make costly compliance mistakes.

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Understanding Gross Receipts and Sales Tax in California

In California, sales tax is based on gross receipts—but what exactly counts? Learn what must be included, what can be excluded, and how to report it properly.

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Source and Legal Reference

This page summarizes information from:

• CDTFA Publication 113 – Coupons, Discounts, and Rebates
• Regulation 1671.1 – Discounts, Coupons, Rebates, and Other Incentives