Do You Pay Sales Tax on Coupons in California?

Using a coupon at checkout? Whether you’re saving on groceries, electronics, or clothing, you might still be paying sales tax on the pre-discounted price. It all depends on who issued the coupon and whether the store is reimbursed.

California’s tax law clearly outlines when a coupon changes the taxable amount—and when it doesn’t.

What Counts as a Coupon?

According to CDTFA Publication 113, coupons fall into two broad categories:

1. Store Coupons

Issued and funded by the retailer (e.g., “$5 off your order” at checkout)
Not reimbursed by a third party
Tax applies to the discounted amount

Example:
You buy a $100 jacket and use a $20 store coupon. You’ll only pay sales tax on the $80.

2. Manufacturer Coupons

Issued by the product manufacturer (e.g., paper or digital coupon from the brand)
The retailer is reimbursed for the discount
Tax applies to the full price

Example:
You buy $5 cereal with a $1 manufacturer coupon. Even though you only pay $4, you’ll be taxed on $5, because the store gets reimbursed.

What About Digital Coupons?

Same rules apply. It doesn’t matter if the coupon is paper, digital, or loaded onto a loyalty card—the key question is who funds the discount.

Quick Reference Table

Type of Coupon	Retailer Reimbursed?	Tax Applied To
Store Coupon	No	Discounted Price
Manufacturer Coupon	Yes	Full Price
Loyalty Card Instant Deal	Depends	Check who funds it
Retailer “Cash” Discounts	No	Discounted Price

FAQs

Q: What if the coupon is for a “free” item?
If the free item is truly free and not part of a larger paid bundle, no sales tax is due. But if it’s a BOGO offer, tax may apply to the full price of the first item. See our BOGO tax guide for full details.

Q: Do I pay sales tax on coupons used online?
Yes—California applies the same rules to online purchases as in-store ones. Check the fine print: if it’s a manufacturer discount, you’re taxed on the full price.