Coupon Cutters Beware: You Are About To Be Taxed!

State newspaper editors must have breathed a sigh of relief when, under the Malloy Administration’s recent tax proposals, the long list of products previously exempt from the sales tax did not include the daily paper. Already reeling from the effects of the internet, newspapers have been trying to market themselves anew. One strategy has been to trumpet how many thousands of dollars a subscriber can save annually by clipping coupons in the daily paper. That strategy may be undermined somewhat by the Malloy Administration’s new tax proposal to place a tax on coupons. If adopted, traditional coupon cutting may lose some of its sex appeal.

First, the good news: Most foods are still tax exempt, so your food coupons will still be good. However, coupons for just about anything else—those ubiquitous Kohl’s coupons, restaurant discounts, Bob’s coupons, oil change coupons, 40% off an item at Michaels, etc.—won’t work quite as well anymore.

Let’s say you get a coupon for 20% off an item at Bob’s in Middletown. You find a shirt for $40 that you like. With the 20% discount, the shirt used to cost you $32 plus 6% sales tax on the $32. Under the new proposal, you’d still pay $32, but you’d pay sales tax on the original $40 price; furthermore, the under $50 clothing purchase sales tax exemption would be repealed. Plus, the new sales tax would be 6.35% not 6%. (Note that the proposal would raise the sales tax to 6.25% with an optional extra .10% to be added by the local town or city for them to keep. Do you really think they won’t add that on to obtain additional revenue?)

Another potentially troubling aspect of the new list of repealed tax exemptions includes store items that are on sale but have no coupons. Let’s say you walk into a department store and spy a “Manager’s Clearance” special. A tool that once cost $50 now costs $20 due to an end of season clearance sale. Your sales tax will be calculated on a $50 purchase, not on a $20 purchase. Non-coupon sales items, therefore, will also be taxed on the pre-sale price basis. This could run into lots of extra money when it comes to big ticket items such as cars and major appliances.

Speaking of cars, trade-ins won’t be as appealing as before. Here’s why: Let’s say you wish to purchase a car with a sticker price of $20,000. Your current car is worth $7,500 in a trade-in. Therefore, your net cost to the dealer is $12,500 ($20,000 minus $7,500). Under the current law, you would pay sales tax on the $12,500 figure. Under the new proposal, you would pay sales tax on the $20,000 figure—quite a difference. If this part of the proposal becomes law later this spring, expect a rush to car dealerships before July 1st.

Thus far, news stories have focused mainly on the hike in the sales tax, income tax, and the proposed inclusion of the sales tax on haircuts and oil burner service contracts. The list of proposed new items (over 50) to be subjected to the new, higher sales tax is beginning to become more widely publicized. Some of those “new” items to be taxed would blunt the deals formerly available to consumers through coupons, sales items in stores, and automobile trade-ins.